The U.S. is expected to bring in $3.5 trillion in tax revenue in 2018, according to Congressional Budget Office projections. About half of that comes from individual income taxes and one-third comes from payroll taxes, which include Social Security and Medicare taxes that workers pay.
That's right — the federal government relies heavily on your tax dollars. So you might be wondering, "Where does tax money go?" To find out, GOBankingRates looked over the Congressional Budget Office projections for 2018.
The federal budget is projected to be $4.09 trillion for fiscal year 2018, which runs from October 2017 through September 2018, according to the Congressional Budget Office. With tax revenue expected to be $3.5 trillion, that means there will be a deficit of more than $560 billion.
Note that these figures are the latest available from the CBO but are from a June 2017 report — which was released before the tax cut that was enacted in December 2017 and a budget deal that was reached in February 2018. The percentages for each category of budget spending are based on the CBO's 2017 projections.
At 24 percent, Social Security benefits make up the largest share of the federal budget. The U.S. is expected to pay out $988 billion in Social Security old-age, survivors and disability benefits in 2018.
Social Security is funded through a 6.2 percent payroll tax that workers pay and another 6.2 percent that employers pay. Self-employed people have to pay the full 12.4 percent. However, because of the number of adults 65 and older is expected to increase dramatically by 2035, Social Security tax revenues will cover only about 75 percent of benefits, according to the Social Security Administration.
Medicare spending is expected to be $711 billion in 2018, which makes this outlay 17 percent of the federal budget. This federal program provides health insurance coverage for adults 65 and older.
Medicare is funded by a payroll tax of 2.9 percent paid by employees and employers. Each pays 1.45 percent of an employee's income. It's also funded by general revenues and premiums paid by Medicare recipients.
The Congressional Budget Office's 2017 report shows that the federal government is projected to spend $634 billion on national defense in 2018. That's 15 percent of the federal budget.
President Trump's proposed budget for 2019 calls for increasing defense spending to $686 billion. That is equal to 15.5 percent of the proposed $4.40 trillion budget.
Photo credit: Getty
About 10 percent of the federal budget goes toward Medicaid. In 2018, spending on this joint federal and state health insurance program for low-income people is expected to be $410 billion in 2018. However, Trump's 2019 budget proposal seeks cuts in this government safety net, USA Today reports.
In addition to Medicare and Medicaid, the federal government also funds the Children's Health Insurance Program (CHIP) for children of low-income families and health insurance premium subsidies for the Affordable Care Act. Combined, funding for these two health programs is $74 billion, or 1.8 percent of the budget.
About 7 percent of the federal budget will be spent on income security programs in 2018. These programs include unemployment compensation, earned income tax credits, child nutrition programs and the supplemental nutrition assistance program (SNAP). The government is expected to spend $292 billion on these programs — which is a decrease from previous years, according to the Congressional Budget Office.
Photo credit: Getty
Federal Civilian and Military Retirement
Funding for retirement benefits for federal civilian workers and military members makes up almost 4 percent of the budget. The Congressional Budget Office projects that the federal government will spend $160 billion on these retirement benefits.
Most self-employed taxpayers can deduct health insurance premiums, including age-based premiums for long-term care coverage. Write-offs are available whether or not you itemize, if you meet the requirements.