What Is Tax Freedom Day?

You Work for Uncle Sam Until April 24

Tax Freedom Day from Uncle Sam
Tax Freedom Day is the first day each year you're no longer working for Uncle Sam. Photo: Katrina Charmatz/Getty Images

Definition: Tax Freedom Day® is the first day each year that Americans work for themselves. This just means that the income earned by Americans up until that point is the amount of income that will go toward taxes that year. It gives you a way to visualize your tax burden. You can think of the work you do from January until Tax Freedom Day as working for Uncle Sam, state and municipal governments.

The time from Tax Freedom Day until the end of year, you’re working for yourself. In 2016, Tax Freedom Day arrived on April 24. 

How Is Tax Freedom Day Calculated?

The Tax Foundation calculates Tax Freedom Day by using the total amount of taxes paid the previous year. It considers historical trends and the most recent economic data to make a projection of the tax burden for the upcoming year.

For 2016, the Foundation projected $3.3 trillion in federal taxes and $1.6 trillion in state and local taxes. It takes this total of $5 trillion and divides it by the total personal income earned by Americans each year. The ratio is 31 percent. That means that on average, Americans work a third of their lives just to pay taxes.

For the final step, the Foundation multiplies that ratio by 365. That's 114 days, which falls on April 24, 2017.

Here's another way to visualize it. In January, you work to pay off federal income taxes.

February goes toward paying Social Security, Medicare and other payroll taxes, as well as state income taxes. In March, you pay state and local sales and excise taxes, as well as property taxes. The first 24 days of April, you work to pay corporate income taxes (through higher prices), motor vehicle license taxes, as well as severance and estate taxes.

The official Tax Freedom Day doesn't include government spending, only government revenue. That's because the federal government is running a budget deficit that will be paid by future generations. If Americans worked to pay off all spending this year, Tax Freedom Day would be May 8. (Source: "Tax Freedom Day," Tax Foundation. "Tax Freedom Day," Yahoo Finance.)

Calculate Your Personal Tax Freedom Day

Tax Freedom Day represents the American people as a whole. So what's your personal Tax Freedom Day? Here's an easy way to calculate it for any previous year. You'll have all the information you need when you pay your taxes. First, add up your total state and federal tax obligations. Next, find your adjusted gross income. Divide the taxes by the income to get a percentage.

Now multiply that percentage by 365, the number of days in the year. You will get the number of days it takes to pay off your tax bill. Enter that number into this calculator. That's your personal Tax Freedom Day.

Is It Worth It?

Government budget spending is usually such a large number, it’s hard to relate to your everyday life. Converting budget spending into days worked makes it easier to wrap your head around. With a better picture of your tax burden, you may think that it’s too high.

Americans pay more in taxes than they spend on food, clothing and shelter combined. Now that you know how much of your life is spent paying for government spending, it raises an important question. Do you feel you are getting your money's worth? For more, see Why Do We Have to Pay Taxes? and How Your Tax Dollars Are Spent.

Why Does Tax Freedom Day Change?

Tax Freedom Day® 2016 is the same as 2015. Both are the latest in the past six years.

  • April 24, 2015
  • April 21, 2014
  • April 18, 2013
  • April 17, 2012
  • April 12, 2011  
  • April 9, 2010

Why does Tax Freedom Day keep getting later?  More revenue is being collected by the government now than in 2010. Americans pay more taxes now because more people are working. Total tax receipts are higher, which makes Tax Freedom Day later.

Another reason Tax Freedom Day is later was because taxpayers got a break in 2009 due to the economic stimulus package.

It included tax reductions to give consumers more money to spend and stimulate economic recovery. 

Tax Freedom Day can also get earlier. It's six days earlier than in 2007 before the 2008 financial crisis. Americans pay less in taxes now than in 2002. That's when the first of the Bush tax cuts were passed.

The latest Tax Freedom Day on record occurred on May 1, 2000. This was right before the 2001 recession, when tax rates were higher. On average, families paid 33 percent of total income in state, local and federal taxes.