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U. S. Investigations & Government Accountability

By: Editorial Staff

Where Does U. S. Taxpayer Money Go? A Guide to Federal Government Spending

Every spring the president submits a proposed federal budget to Congress. On September 30 the federal government closes its books on another fiscal year, and the gap between what it took in and what it spent is measured in trillions of dollars. Individual income taxes alone brought in about $2.7 trillion in fiscal year 2025, more than the entire annual economic output of most countries. But where did that money actually go?

This guide explains, in plain language, and with official sources, how the federal government raises money, how the budget works, where the money ends up, and how any citizen can check the details. It draws on records published by the Treasury Department, the Office of Management and Budget, the Congressional Budget Office, the IRS, the Government Accountability Office, and the federal inspector general community.

Key Takeaways

The federal government ran a $1.8 trillion deficit in FY2024, and a $1.775 trillion deficit in FY2025; spending consistently exceeds revenue by about a quarter.

Individual income taxes, and payroll taxes supplied more than 80 percent of all federal revenue in FY2025, about $4.4 trillion of the $5.2 trillion total.

Social Security, Medicare, and Medicaid dominate federal spending; HHS, and the Social Security Administration alone paid out roughly half of all FY2025 outlays.

Mandatory spending, programs set by law, accounts for the majority of the budget; discretionary spending, defense plus nondefense, is what Congress debates each year through appropriations.

Every dollar is trackable down to individual awards via USAspending. gov, FiscalData. Treasury. gov, GAO High Risk List, and inspector general reports on Oversight. gov

Where Federal Government Revenue Comes From

The federal fiscal year runs from October 1 through September 30 of the following calendar year. In fiscal year 2025 the government collected a total of $5.235 trillion in receipts, according to the Treasury final Monthly Treasury Statement. That was up from about $4.919 trillion in FY2024, and $4.439 trillion in FY2023. In all three years the government spent more than it collected; the deficit reached $1.775 trillion in FY2025, close to the $1.8 trillion deficit in FY2024.

Federal revenue is not a single tax. The Treasury official statement breaks FY2025 receipts down this way:

Individual income taxes:$2.656 trillion, about half of all receipts. These are taxes withheld from paychecks plus payments made with annual returns.
Social insurance, and retirement receipts:$1.748 trillion, payroll taxes including FICA, and SECA taxes that fund Social Security, and Medicare, unemployment insurance taxes, and federal employee retirement contributions.
Corporation income taxes:$452 billion, taxes on corporate profits.
Customs duties:$195 billion, tariffs on imported goods, a figure that nearly tripled compared with the $77 billion collected two years earlier, perthe same Treasury table.
Excise taxes:$106 billion, taxes on gasoline, tobacco, alcohol, and airline tickets.
Estate, and gift taxes:$29 billion, plus miscellaneous receipts of about $48 billion, completes the rest.

All of these figures come directly from Table3 of the final FY2025 Monthly Treasury Statement, which lists receipts by source. The Internal Revenue Service collects most of this money; in FY2025 it reported collecting $5.3 trillion in gross taxes, processing 271.4 million returns, and issuing $638.8 billion in refunds. Individual income tax withheld, and other payments totaled $2.9 trillion before refunds, and corporate income taxes added $486.4 billion. Remaining receipts, such as Federal Reserve earnings, and customs fees, are recorded by Treasury rather than the IRS.

How the Federal Budget Works

The federal budget is not a single law. It is the product of a year-round process involving every federal agency, the White House Office of Management, and Budget, the president, and Congress. USA. gov describes the sequence this way:

Agencies submit budget requests. Each federal department, and agency proposes what it needs for the coming fiscal year.
OMB develops the president proposal. The Office of Management, and Budget reviews those requests, and assemblesa unified budget plan for the president.
The president submits the budget to Congress. By longstand ing practice, the full proposal arrives early in the calendar year, and detailed tables appear in the annual Budget of the United States Government, includingthe OMB Historical Tables, which reach back to the 1930s. The president’s budget is a proposal, not a law; Congress is not obliged to adopt it.
Congress divides the work. Funding is split among 12 appropriations subcommittees, in the House, and12 in the Senate, each handling different parts of the government, such as defense, energy and water, and homeland security.
Congress passes spending, and revenue laws. The House, and Senate develop budget resolutions, negotiate differences, andpass regular appropriations bills, which the president may sign or veto. The Congressional Research Service describes this process, in its report The Congressional Appropriations Process: An Introduction. The 12 annual appropriations bills fund most discretionary programs.
The government executes the budget. Agencies may spend money only as law permits. GAO Glossary of Terms Used in the Federal Budget Process explains the difference between budget authority, the legal permission to spend, obligations, commitments to spend, and ofutlays, money actually paid out. A contract signed in September may not produce an outlay until years later.

Throughout this cycle, the Congressional Budget Office provides cost estimates for legislation, and multi-year baseline projections of spending, revenues, anddeficits. In its January ., 2025 report The Budget, andEconomic Outlook:2025 to2035, CBO projected federal outlays of $7.0 trillion in FY2025, 23.3 percent of gross domestic product, and revenues of $5.2 trillion, or17.1 percent of GDP, leaving a deficit of $1.9 trillion. The Treasury final accounting later put FY2025 outlays at$7.010 trillion.

Where Federal Taxpayer Money Goes

The largest share of federal spending is payments to people, retirees, people with disabilities, patients, veterans, andlow-income families, followed by interest on the national debt, then defense, and then everything else. Using agency-level outlays from the final FY2025 Monthly Treasury Statement, here is how the roughly $7.010 trillion the government spent broke down:

Department of Health, and Human Services:$1.884 trillion, the single largest agency total, dominated by Medicare, and Medicaid, which pay for health care for older adults, people with disabilities, and low-income Americans. These are largely entitlement payments dictated by statute, not by annual congressional choice.
Social Security Administration:$1.647 trillion, retirement, survivors, and disability benefits paid under formulas set in law. Together with HHS it accounted for roughly half of all federal outlays in FY2025.
Treasury: interest on Treasury debt,$1.216 trillion, gross interest paid on the national debt. Net interest costs totaled $881 billion in FY2024, CBO reported, about two anda half timesthe amount in 2021. Interest is now routinely among the largest spending categories.
Department of Defense, military programs:$868 billion, the biggest chunk of discretionary spending, covering military pay, operations, weapons procurement, andresearch.
Department of Veterans Affairs:$377 billion, disability compensation, pensions, health care, and other benefits for veterans.
Department of Agriculture:$227 billion, much of it nutrition assistance, includingthe Supplemental Nutrition Assistance Program, plus farm support.
Department of Homeland Security:$115 billion, and Department of Transportation:$128 billion, and every other agency makes up the remainder.

CBO infographics for FY2024 made the point more starkly: Social Security, and Medicare alone eclipsed discretionary spending, the money Congress debates each year. In FY2024 the deficit reached $1.8 trillion, 6.4 percent of GDP, well above the 50-year average of 3.8 percent. CBO projects that federal debt held by the public, already about 100 percent of GDP in FY2025, would climb to 118 percent of GDP by 2035, driven mainly by rising Social Security, Medicare, and interest costs.

Mandatory vs. Discretionary Spending

Understand ing federal spending requires separating two legal categories, plus interest. Mandatory spending, sometimes called direct spending, does not require annual appropriations; laws Congress has already enacted entitle people or states to receive payments if they meet eligibility rules. Social Security, Medicare, Medicaid, SNAP, veterans disability compensation, unemployment insurance, and federal employee retirement all work this way. The government pays these bills automatically, year after year, unless Congress changes the underlying law. CBO reported Social Security, and Medicare alone made up most of mandatory spending, and more than one-third of all federal spending, in FY2024.

Discretionary spending is the part Congress funds anew every year through the 12 annual appropriations bills. It covers defense, federal law enforcement, courts, education, transportation infrastructure, scientific research, foreign aid, and the operating budgets of nearly every federal agency. Appropriations generally provide budget authority that expires at the end of the fiscal year; money not spent by September 30 is gone, and it cannot legally be used for anything other thanthe purpose Congress specified.

The third category, net interest on the national debt, is neither mandatory nor discretionary; itis a legal obligation to pay holders of Treasury securities. CBO put net interest at $881 billion for FY2024, already larger than either defense or nondefense discretionary spending, and projected it would remain comparable to those major categories for years. A roughly two-thirds, one-third split, mandatory dominating discretionary, has been the federal budget structure for decades, and it is why annual political battles over appropriations concern a minority of the budget.

Federal Grants and Government Programs

A large share of federal spending flows through federal grants to states, cities, universities, tribes, nonprofit organizations, and businesses. Grants. gov defines a grant as a way the government funds ideas, and projects to provide public services, and stimulate the economy. Grants are one form of federal financial assistance, a category that also includes cooperative agreements, loans, and direct payments. Medicaid, for example, is technically federal matching payments to state governments, which then pay health-care providers. That makes it the largest grant program in the federal budget, though most people never think of it that way.

Grants come in two broad flavors: categorical grants, restricted to a specific purpose, and often requiring matching funds, applications, or detailed federal rules, and block grants, which give states, and localities broader discretion over a fixed pot of money. Within those broad types, grants may be distributed by formula, based on population or poverty, by project, through competition, or by matching, a share of state or local spending. Open funding opportunities are posted on Grants. gov each year, and federal grant awards, who got money, for what, and where, are visible down to the individual award, in USAspending. gov, in searches by state, congressional district, county, city, and zip code. Grants follow a lifecycle, pre-award application review, award decisions, then post-award implementation, reporting, and audits,; recipients must file financial, and programmatic reports or risk losing funding. For taxpayers, the practical question about any grant program is not just how much was awarded, but whether the money produced the promised public benefit. See also our guide to fraud, waste, and abuse in the U. S. government.

Government Contracts and Procurement

The federal government also buys goods, and services from private companies, from fighter jets, and aircraft carriers to office supplies, IT systems, consulting, and construction. These purchases are recorded as federal contracts, which the government defines as agreements for specific goods, and services. Contract data is reported by agencies into the Federal Procurement Data System, and then published, award by award, in USAspending. gov, searchable by contractor, location, industry, and agency. Since the DATA Act of2014, agencies must link each award to the appropriation account, budget function, and program activitythat funded it. This transparency serves oversight, andhelps small, and disadvantaged businesses find opportunities. For more, see our guide to how U. S. government contracts work.

Procurement is competitivein principle; contracting officers solicit bids, evaluate offers, and award to the offeror whose proposal best servesthe government. When companies believe an agency broke the rules, they can filea bid protest, which GAO adjudicates, deciding whether agencies complied with procurement statutes, and regulations. GAO also keeps a watchlist of troubled acquisition areas; its 2025 High Risk List flagged defense contract management, defense weapon systems acquisition, NASA acquisition management, VA acquisition management, and Improving IT Acquisitions, and Management as areas with serious vulnerabilities to waste, fraud, abuse, and mismanagement. Contract fraud, overbilling, false claims, defective pricing, or kickbacks, is pursued by the Justice Department, and companies found liable may be suspended ordebarred from federal work. Each agency inspector general also investigates procurement fraud, and publishes findings, often with dollar figures, on Oversight. gov. A useful citizen habit isto compare what agencies obligated, promised to pay, against what they actually outlaid, gaps are normal butworth understand ing, and to check whether awards were competed orsole-source.

How Government Spending Is Monitored

Federal spending is monitored along three parallel tracks: Treasury accounting, GAO and agency inspector general auditing, and statutory reporting requirements placed on agencies, and grant recipients.

Treasury accounting. Every dollar the government collects or spends passes through Treasury books. The Bureau of the Fiscal Service publishes the Monthly Treasury Statement, the official month-by-month summary of receipts, and outlays, plus the Combined Statement of Receipts, Outlays, and Balances, the authoritative annual report.
Audit, and investigation. GAO, the investigative arm of Congress, audits federal programs, and in its recurring High Risk List identifies government operations most vulnerable to waste, fraud, abuse, and mismanagement. Its 2025 update named 38 such areas, and reported sustained attention had produced nearly $759 billion in financial benefits since the program began, about $40 billion per year. Each agency also has its own inspector general, whoseaudits, and investigations focus on that agency programs; their reports are published on Oversight. gov.
Improper payment reporting. Since2003, agencies have had to estimate, and publicly report improper payments, payments that should not have been made orwere made in the wrong amount, including overpayments, underpayments, and insufficient documentation. OMB consolidates the estimates on PaymentAccuracy. gov, and GAO reviews them annually. For FY2024, 16 agencies reported about $162 billion in estimated improper payments across68 programs, with about84 percent of that total consisting of overpayments. The estimate fell about $74 billion from the prior year, largely because pandemic-era programs wound down. Since FY2003, agencies cumulative improper payment estimates have totaled about $2.8 trillion, and actual improper payments may be significantly higher. Eighteen programs reported estimated improper payment rates of at least10 percent, six above25 percent.

The Role of Congress, GAO, and Inspectors General

Three institutions carry most of the burden of watching the money. Congress holds the constitutional power of the purse. Article I of the Constitution provides that no money shall be drawn from the Treasury but in consequence of appropriations made by law, and Congress enforces it througheach annual cycle of authorizations, and appropriations. Its committees hold hearings into agencies performance, and CBO gives it independent cost estimates, and projections. The House, and Senate Budget, and Appropriations Committees are the principal gatekeepers.

GAO, the Government Accountability Office, works for Congress as an independent, nonpartisan auditor. It audits agencies financial statements, evaluates program results, issues legal opinions on appropriations law, decides bid protests, and maintains the High Risk List. Its recommendations carry no binding force, but agencies, and Congress routinely act on them; GAO high-risk work alone has produced hundreds of billions in financial benefits since the1990s. The Comptroller General, who heads GAO, is appointed for a 15-year term, insulatingthe office from politics.

Inspectors General are the frontline detectives. Created by the Inspector General Act of1978, and its amendments, IGs exist to prevent, and detect waste, fraud, and abuse within their own agencies, and to promote economy, efficiency, and effectiveness. There are about72 federal IGs; roughly half appointed by the president, with Senate confirmation, and half by agency heads,. Bylaw they must be nonpartisan, and neither the agency head nor anyone else may prevent an IG from conducting an audit orinvestigation. IGs report both to the agency head, and Congress, publish audits, and semiannual reports, and maintain confidential hotlines. Across the government, IGs reported about $693 billion in potential savings overthe decade ended around2025. Members of the public who suspect fraud, waste, orabuse can report through the Oversight. gov hotline, and federal law protects whistleblowers from retaliation. See our related guide to America high-risk government programs.

How Americans Can Track Federal Spending

USAspending. gov, the official open-data source for federal awards. Search contracts, grants, and loans by agency, recipient, industry, state, county, or congressional district. Its Spending Explorer shows totals by purpose, agency, and type of purchase, back toFY2008. Award data includes obligations, amounts committed, and outlays, amounts actually paid.
FiscalData. Treasury. gov, the Treasury data hub. Download the Monthly Treasury Statement, watch monthly receipts, and outlays, andread plain-English guides on federal spending, and debt.
USA. gov, the federal budget process, a short official explainer of how the budget becomes law.
Grants. gov, the official portal for finding, and applying for, federal grants.
SAM. gov, the System for Award Management, where entities register to do business with the government, and which hosts contract award data.
GAO High Risk List, the recurring list of programs most vulnerable to waste, fraud, abuse, and mismanagement, a practical roadmap ofwhere problems hide.
PaymentAccuracy. gov, OMB dashboard of agencies improper payment estimates.
Oversight. gov, searchable reports from every federal inspector general, and the portal for reporting suspected fraud, waste, orabuse.

What Taxpayers Should Look For

Knowing where to look is half the battle; knowing what looks wrong is the rest. Based on the patterns federal auditors themselves track, here are six things worth checking:

Improper payment rates. On PaymentAccuracy. gov, and in GAO annual improper payments report, watch programs whose error rates are persistently double-digit. High rates do not prove fraud, butthey flag weak controls worth examining.
GAO High Risk List. If your area of concern appears onit, such as Medicare, Medicaid, defense contracting, IT modernization, or disaster assistance, expect problems, anddemand evidence of progress. GAO updates the list at the start of each new Congress.
Obligated vs. outlaid gaps. In USAspending, lookfor large programs where obligated amounts far outrun actual outlays, orwhere obligations were repeatedly modified upward, patterns that can signal cost growth ordelayed delivery.
Sole-source vs. competed awards. In contract data, check whatshare of awards were competed. Sole-source awards are legal when justified, butheavy reliance on them is a classic procurement risk.
Inspector general findings. On Oversight. gov, search agencies recent audits, and investigations. Pay attention to Questioned Costs, and Funds Put to Better Use, auditors formal estimates of money spent improperly orthat could be saved.
Legal status discipline. An allegation is not a finding, a finding is not an indictment, an indictment is not a conviction. Treating those milestones as interchangeable is how misinformation spreads. See our guide to fraud, waste, and abuse in the U. S. government.

Frequently Asked Questions

Q: How much does the federal government spend each year? A: In FY2025, outlays totaled about $7.010 trillion, against receipts of about $5.235 trillion, leaving a deficit of about $1.775 trillion. In FY2024, outlays were about $6.75 trillion, and receipts about $4.92 trillion, perthe Treasury final statements.

Q: Where does most federal revenue come from? A: Individual income taxes, about$2.7 trillion, in FY2025, plus payroll taxes of about$1.7 trillion funding Social Security, Medicare, and related programs. Together they supplied more than 80 percent of all receipts. Corporation income taxes addedabout$452 billion, and customs duties, excise taxes, estate taxes, andmiscellaneous receipts made up most of the rest.

Q: Why does the government borrow money? A: Because in most years it spends more than it collects. When receipts fall short ofoutlays, the Treasury borrows the difference by selling securities to the public. Interest onthat debt, about$881 billion in FY2024, is now one of the largest individual itemsin the budget.

Q: What is the difference between mandatory and discretionary spending? A: Mandatory spending is set by stand ing law, eligibility rules, and benefit formulas already on the books, so payments flow automatically unless Congress changes the law. Discretionary spending is set each year through the annual appropriations bills. Mandatory programs make upthe majority of the budget; discretionary spending, defense plus nondefense, is the minority Congress debates. Interest is a separate, third category.

Q: Can ordinary citizens really see where the money goes? A: Yes. USAspending. gov shows individual contracts, grants, and loans back toFY2008; FiscalData. Treasury. gov shows monthly totals; Oversight. gov shows inspector general reports. Congressional-district summaries area few clicks away.

Sources and Official Records

All figures in this article were verified against the following primary government records:

U. S. Department of the Treasury, Bureau of the Fiscal Service. Final Monthly Treasury Statement, FY2025,https://fiscaldata. treasury. gov/static-data/published-reports/mts/MonthlyTreasuryStatement_202509.pdf
U. S. Department of the Treasury, Bureau of the Fiscal Service. Final Monthly Treasury Statement, FY2024,https://fiscaldata. treasury. gov/static-data/published-reports/mts/MonthlyTreasuryStatement_202409.pdf
U. S. Department of the Treasury, Bureau of the Fiscal Service. Monthly Treasury Statement dataset, https://fiscaldata. treasury. gov/datasets/monthly-treasury-statement/
U. S. Department of the Treasury. America Finance Guide: Federal Spending, https://fiscaldata. treasury. gov/americas-finance-guide/federal-spending/
Internal Revenue Service. SOI Tax Stats: IRS Data Book, https://www. irs. gov/statistics/soi-tax-stats-irs-data-book
Internal Revenue Service. Returns filed, taxes collected, and refunds issued, https://www. irs. gov/statistics/returns-filed-taxes-collected-and-refunds-issued
Congressional Budget Office. The Budget, and Economic Outlook:2025 to2035,https://www. cbo. gov/publication/60870
Congressional Budget Office. Monthly Budget Review: Summary for FY2024,https://www. cbo. gov/publication/60843
Congressional Budget Office. CBO Releases Infographics About the Federal Budget in FY2024,https://cbo. gov/publication/61258
Office of Management, and Budget. Historical Tables of the U. S. Federal Budget, https://www. whitehouse. gov/omb/information-resources/budget/historical-tables/
Office of Management, and Budget. PaymentAccuracy. gov, https://paymentaccuracy. gov
USA. gov. The federal budget process, https://www. usa. gov/federal-budget-process
Congressional Research Service. The Congressional Appropriations Process: An Introduction, https://www. congress. gov/crs-product/R42388
Congressional Research Service. Tracking Federal Awards: USAspending. gov, and Other Data Sources, https://www. congress. gov/crs-product/R44027
Congressional Research Service. Tracking Federal Awards in States, and Congressional Districts Using USAspending. gov, https://www. congress. gov/crs-product/IF10231
Government Accountability Office. A Glossary of Terms Used in the Federal Budget Process, https://www. gao. gov/products/gao-05-734sp
Government Accountability Office. High-Risk List, 2025,https://www. gao. gov/high-risk-list, and High-Risk Series, GAO-25-107743,https://www. gao. gov/products/gao-25-107743
Government Accountability Office. Improper Payments: Information on Agencies Fiscal Year 2024 Estimates, https://www. gao. gov/products/gao-25-107753
Government Accountability Office. Bid Protests, https://www. gao. gov/legal/bid-protests, and Bid Protests: Key Features, and Trends, https://www. gao. gov/products/gao-25-108652
Grants. gov. Grants 101,https://grants. gov/learn-grants/grants-101/
Council of the Inspectors General on Integrity, and Efficiency, Oversight. gov. Inspectors General, https://www. oversight. gov/about/inspectors-general, and Hotline, https://www. oversight. gov/hotline
USAspending. gov. Government Spending Explorer, https://www. usaspending. gov/explorer, and main portal, https://www. usaspending. gov

Where Does U.S. Taxpayer Money Go? A Guide to Federal Government Spending