Understanding the difference between Tax Day & Tax Freedom Day

Understanding the difference between Tax Day & Tax Freedom Day

April 15, 2024
As you are likely working on your taxes this week, it might be of interest to compare the difference between Tax Day (April 15th) and Tax Freedom Day. While both dates are tax-oriented, they signify different aspects of our tax legislation.
 
Tax Day:
Tax Day typically falls on (or around) April 15th. As you know, it is the deadline for filing income tax returns. For many individuals and businesses, this date marks the culmination of the annual tax filing process.
 
Tax Freedom Day:
Tax Freedom Day represents the theoretical day when the average taxpayer has earned enough income to cover their total tax burden for the year. In essence, it signifies the portion of the year that Americans work to pay their federal, state, and local taxes before they start earning money for themselves. Tax Freedom Day varies among states due to different tax policies.
 
I like to focus on the issue of how much of our income the government takes because they are truly the biggest barrier to building wealth.
 
According to the Tax Foundation, in 2023 the “states” with the highest tax burdens are New York, Washington DC, and New Jersey. As a result, they have the latest tax freedom day. Every dollar you earn from Jan 1st to the following dates theoretically goes to taxes (averages are for illustration purposes only):
50th New York, May 3rd!
50th Washington DC, May 3rd!
48th New Jersey, April 30th!
 
On the opposite end of the spectrum, the “states” with the lowest tax burdens are Alaska, Oklahoma, Florida, and Louisiana. As a result, they have the earliest tax freedom days. A resident of these states has theoretically finished working to pay their tax burden on:
#1 Alaska, March 25th!
#2 Oklahoma, March 30th!
#3 Florida, April 4th!
#3 Louisiana, April 4th!
In conclusion, as we submit our tax returns this year lets pledge to focus on tax planning to avoid paying more taxes than is absolutely necessary.