Very basic question regarding taxes


Your question can be understood in two different ways (or a mix of both):

First option: You are asking why you agreed on a salary of $15,000 annually with your employer, when in the end he subtracts taxes from it and you get only $12,000 in paychecks. Wouldn't it make sense to have agreed on a salary of $12,000 directly?

The answer to that is that there are three parties involved, not just two. Your employer, you and the state. Your employer does pay $15,000 (so that number matters), but you receive only $12,000. The difference of $3,000 goes to the state.

Second option: You are asking, why you have to declare your income in order to pay taxes (or get some back). Couldn't your employer just have deducted the right amount beforehand?

The answer is that taxes are very complicated in most countries, mostly because they serve several different purposes (social fairness, incentives of certain behavior,...). So to calculate the right amount you need a lot of information that your employer should not have (Privacy! He would have to have a lot of information about your life.), and in many cases even cannot have because it depends on your future actions: Most tax laws refer to a whole year as a base, but at the moment of receiving your paycheck you don't know yet what exactly will happen during the rest of the year.


Because your proposed scheme assumes the person only works one job, which is not always true.

One of the purpose of tax is to re-balance wealth in the society, in addition to, of course, financing the government. When resource is dis-proportionally allocated, people start to fight, and that is not so nice for everyone. So, tax is structured such that if you are rich, you have to pay more; and if you are poor, you pay less (or even subsidized, depending on country).

So, if I make $1,000 a year, I pay 5% tax. If I make $5,000, I pay 10% tax. However, my employer would not know how many jobs I'm taking. Only I know that. All he knows is that my salary is $3,000.

Furthermore, I may be subjected to tax reduction. For example, if I am a disabled person or I have children, I would pay less tax since my cost of living is higher. If I spend my salary on further education, I can also get tax reduction as I am not spending that money on luxury, but on ways which may contribute to society in the future.

My employer would not have this information.

These are just examples of course, different countries have different tax rates and reduction schemes.


It is also in my benefit if tax is paid later. Instead of keeping the money in the bank until taxation comes, I can use that money for investment, potentially ending up with more. After all, it is my money, I earned it and so I should have the right to use it.


Many countries do this. It's called Pay-As-You-Earn (PAYE) in the United Kingdom and the majority of workers pay their taxes in this manner. There is a reconciliation process at year-end that does sometimes result in a rebate - care is taken to avoid a taxpayer paying too little and being subsequently presented with a bill they can't pay but it does happen.