Taxes · Foundational · Video Lesson
What Are Taxes? — Introduction to Taxes
A free video lesson and article introducing the basics of taxes — what they are, why we pay them, the main types students will encounter, and how tax money is used by governments. Free to read and watch.
What Students Learn
Learning objectives
- What taxes are — mandatory payments companies and individuals make to fund government operations
- Why governments collect taxes — to finance public needs like roads, schools, and social programs
- The three categories of taxes: taxes on earnings, taxes on purchases, and taxes on property
- The key tax types: income tax, payroll tax, sales tax, and property tax — and how each is collected
- How taxes are collected at different stages — from paychecks, at the point of purchase, and annually
- Where tax revenue goes — funding public services such as transportation, education, and healthcare
Video Lesson
Watch: What Are Taxes?
For Teachers
How to use this lesson
Show the video as a stand-alone introduction to taxes — no prior knowledge required. The article below provides a written explanation that students can read and annotate. Both the video and article work well as a warm-up before moving into specific tax topics like sales tax, income tax forms, or payroll deductions.
Discussion prompt: After watching, ask students: which type of tax affects them most right now? Sales tax is a good entry point for younger grades; payroll tax and income tax are more relevant for older students approaching their first job.
Appropriate for a wide grade range (3–12). Use the video for younger grades and the article for older students who need reading comprehension practice alongside the financial literacy concepts.
Read the Article
What are taxes?
Taxes are funds that companies and individuals must pay to the government to fund government operations. Taxes are mandatory and cannot be avoided.
A tax system is common in most countries — it pays for national and public needs and government functions. Tax revenue finances things like roads and schools, and programs such as Social Security and Medicare.
There are many types of taxes, including sales taxes and federal income taxes. In the United States, the Internal Revenue Service (IRS) collects federal income taxes; other taxes are collected locally or regionally. Taxes are the main source of revenue for governments.
What are the different types of taxes?
Most taxes fall into three categories: taxes on your earnings, taxes on the things you buy, and taxes on what you own — income tax, sales tax, and property tax. Here’s a quick overview of the ones every taxpayer should know:
Income tax. A percentage of income — wages, salaries, tips, commissions, and unearned income like interest — is paid to the federal or state government. Individuals pay personal income tax and companies pay corporate tax; both are usually collected by federal and state governments.
Payroll tax. If you’re an employee, a percentage is taken from your pay by your employer to finance social insurance programs such as Social Security and Medicare.
Sales tax. Charged when a customer pays for a product or service — the customer pays the tax to the business, which remits it to the government. Groceries, gasoline, and most retail purchases are common examples.
Property tax. Based on land value and property assets that an individual or business owns. Rates vary by county and municipality, and the tax is usually collected by the county.
How much of your income actually goes to taxes?
These taxes are collected at different times, not all at once. For example, if you earn $3,000 a month and are taxed at 10%, $300 is deducted from your paycheck. If you then spend $500 of that on a new phone with a 7% local sales tax, you pay another $35 in tax. In total — though spread across the month — $335 of your $3,000 income goes to taxes.
Where does the tax money go?
Depending on which level of government collected it, tax money funds public goods and services that benefit most people — transportation, education, and healthcare. Local tax can build schools or parks; federal tax can also fund Social Security and defense programs.
Are taxes too high?
Opinions vary. Some argue taxes should stay low so the economy can keep growing; others believe taxation redistributes income and funds the common good. Either way, schools, roads, and hospitals depend on tax contributions.
Understanding how taxes work — and where your money goes — can help you make smarter decisions about managing your finances and maximizing your net income.
Related Topics
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