<P> Individuals and corporations pay U.S. federal income tax on the net total of all their capital gains . The tax rate depends on both the investor's tax bracket and the amount of time the investment was held . Short - term capital gains are taxed at the investor's ordinary income tax rate and are defined as investments held for a year or less before being sold . Long - term capital gains, on dispositions of assets held for more than one year, are taxed at a lower rate . </P> <P> In the United States, payroll taxes are assessed by the federal government, many states, the District of Columbia, and numerous cities . These taxes are imposed on employers and employees and on various compensation bases . They are collected and paid to the taxing jurisdiction by the employers . Most jurisdictions imposing payroll taxes require reporting quarterly and annually in most cases, and electronic reporting is generally required for all but small employers . Because payroll taxes are imposed only on wages and not on income from investments, taxes on labor income are much heavier than taxes on income from capital . </P> <P> Federal, state, and local withholding taxes are required in those jurisdictions imposing an income tax . Employers having contact with the jurisdiction must withhold the tax from wages paid to their employees in those jurisdictions . Computation of the amount of tax to withhold is performed by the employer based on representations by the employee regarding his / her tax status on IRS Form W - 4 . Amounts of income tax so withheld must be paid to the taxing jurisdiction, and are available as refundable tax credits to the employees . Income taxes withheld from payroll are not final taxes, merely prepayments . Employees must still file income tax returns and self assess tax, claiming amounts withheld as payments . </P> <P> Federal social insurance taxes are imposed equally on employers and employees, consisting of a tax of 6.2% of wages up to an annual wage maximum ($118,500 in 2015) for Social Security plus a tax of 1.45% of total wages for Medicare . For 2011, the employee's contribution was reduced to 4.2%, while the employer's portion remained at 6.2% . To the extent an employee's portion of the 6.2% tax exceeds the maximum by reason of multiple employers (each of whom will collect up to the annual wage maximum), the employee is entitled to a refundable tax credit upon filing an income tax return for the year . </P>

Why are taxes paid to local state and national government in the united states