T he U.S. federal tax system includes several elements. At the end of 2017, President Trump signed into law P.L. 115-97 , which substantially changed the U.S. federal tax system. This report provides an overview of the federal tax system, including the individual income tax, corporate income tax, payroll taxes, estate and gift taxes, and federal excise taxes, as in effect for 2018. The largest component, in terms of revenue generated, is the individual income tax. For fiscal year (FY) 2018, an estimated $1.7 trillion, or 50% of the federal government's revenue, will come from the individual income tax. The corporate income tax is estimated to generate another $218 billion in revenue in FY2018, or just under 7% of total revenue. Social insurance or payroll taxes will generate an estimated $1.2 trillion, or 35% of revenue in FY2018. The Individual Income Tax4

The individual income tax is the largest source of revenue in the federal income tax system. Filing Status and Deductions

Tax liability depends on the filing status of the taxpayer. The amount of the standard deduction also depends on filing status. Deductions are subtracted before determining taxable income. At a particular statutory marginal tax rate, all individuals subject to the regular income tax, regardless of their overall level of earnings, pay the same tax rate on taxable income within the bracket. Certain higher-income individuals may be subject to the alternative minimum tax (AMT). Tax Credits

After a taxpayer's tax liability has been calculated, tax credits are subtracted from gross tax liability to arrive at a final tax liability (see Figure 3 ). The corporate income tax rate is a flat 21%. Social Insurance and Retirement Payroll Taxes

Payroll taxes are used to fund specific programs, largely Social Security and Medicare. Social Security and Medicare taxes are generally paid at a combined rate of 15.3% of wages, with 7.65% being paid by the employee and employer alike. In 2018, the tax applies to the first $128,400 in wages. This wage base is adjusted annually for inflation. Up through the $100,000 to $200,000 income category, the share of taxpayers paying more in payroll taxes than income taxes exceeds the share of taxpayers paying more in income taxes than payroll taxes. Federal excise taxes are levied on a variety of products. For 2018, it is estimated that revenues will be 16.7% of GDP, slightly below the post-World War II average of 17.2% of GDP. Since the mid-1940s, the individual income tax has been the most important single source of federal revenue (business income may also be taxed under the individual income tax system, as discussed above in " The Individual Income Tax "). Composition of Tax Revenue

The changing shares of federal revenues over time are more clearly shown in Figure 6 . The tax system as a whole is progressive, but not as progressive as the individual income tax system. Four countries have tended to have lower taxes as a percentage of GDP than the United States, with most others tending to have higher taxes relative to the size of the economy.
At the end of 2017, President Trump signed into law P.L. 115-97, which substantially changed the U.S. federal tax system. This report describes the federal tax structure and system in effect for 2018, incorporating these recent changes. The report also provides selected statistics on the tax system as a whole.
Historically, the largest component of the federal tax system, in terms of revenue generated, has been the individual income tax. For fiscal year (FY) 2018, an estimated $1.7 trillion, or 50% of the federal government's revenue, will be collected from the individual income tax. The corporate income tax is estimated to generate another $218 billion in revenue in FY2018, or just under 7% of total revenue. Social insurance or payroll taxes will generate an estimated $1.2 trillion, or 35% of revenue in FY2018. For 2018, it is estimated that revenues will be 16.7% of GDP, slightly below the post-World War II average of 17.2% of GDP.
The largest source of revenue for the federal government is the individual income tax. The federal individual income tax is levied on an individual's taxable income, which is adjusted gross income (AGI) less deductions. Tax rates based on filing status (e.g., married filing jointly, head of household, or single individual) determine the amount of tax liability. Income tax rates in the United States are generally progressive, such that higher levels of income are typically taxed at higher rates. Once tentative tax liability is calculated, tax credits can be used to reduce tax liability. Tax deductions and tax credits are tools available to policymakers to increase or decrease the after-tax price of undertaking specific activities. Individuals with high levels of deductions and credits relative to income may be required to pay the alternative minimum tax (AMT).
The federal government also levies taxes on corporations, wage earnings, and certain other goods. Corporate taxable income is also subject to tax at a flat rate of 21%. Social Security and Medicare tax rates are, respectively, 12.4% and 2.9% of earnings. In 2018, Social Security taxes are levied on the first $128,400 of wages. Medicare taxes are assessed against all wage income. Federal excise taxes are levied on specific goods, such as transportation fuels, alcohol, and tobacco.
Looking at the tax system as a whole, several observations can be made. Notably, the composition of revenues has changed over time. Corporate income tax revenues have become a smaller share of overall tax revenues over time, while social insurance revenues have trended upward as a share of total revenues. Social insurance revenues are a sizable component of the overall federal tax system. Most taxpayers pay more in payroll taxes than income taxes. Many taxpayers pay social insurance taxes but do not pay individual income taxes, having incomes below the amount that would generate a positive income tax liability. From an international perspective, the U.S. federal tax system tends to collect less in federal revenues as a percentage of GDP than other OECD countries.