Video: How Your Tax Dollars Are Spent

Hello, I’m Tammy from TurboTax with some interesting information about how the federal government spends your tax dollars.

You know you have to pay your taxes, but do you know exactly what the federal government spends your hard earned money on?  If not, you may be surprised to learn how the government spends the taxes it collects each year.

Most of the tax revenue that the federal government receives comes from the income taxes paid by individuals, Social Security and Medicare taxes and the taxes businesses pay on their profits. There are many government services and programs that we all use, but they couldn’t exist without government spending.

Each year, the federal government sets a budget — which establishes the amount it plans to spend on each program. The federal budget covers a wide range of expenditures, but most of the tax revenue is spent on just a handful of government programs.

The largest portion of tax revenue is spent to support the military, pay for Social Security, and health care programs. The military spending not only includes the cost of purchasing naval ships, sophisticated aircraft and other equipment—but it also covers the salaries of soldiers and military personnel.

The Social Security and health care programs use a substantial amount of tax money to provide income, services, and health insurance for millions of people in the U.S. — which is why the federal government allocates a big chunk of your tax dollars every year to these programs. Additional expenditures are made for interest on the national debt, (it isn't clear whether the amount spend on military includes former military benefits or if this is accounted for separately) and to maintain the national parks scattered across the country.

The federal government also provides the states with money—allowing them to use the funds for state sponsored programs, such as public school systems and unemployment benefits.

You may be interested to know that for many expenditures, the government has no discretion to decide how to allocate tax funds. There are mandatory spending requirements in federal law that ensure certain programs, such as Social Security, receive sufficient funding before other programs.