Few Things To Know About Tax Brackets
Few Things To Know About Tax Brackets
Filing your income tax is a regular part of life but you may have done it for several years without much thinking about how the system actually works. To start off, it's important to know that Federal income tax is considered as progressive tax. It means that the more money you earn, the higher will be your tax rate. It's obvious that low earners pay less because they will not have the money to pay the high taxes. That's why everything is adjusted to your income level.
Tax brackets are simply ranges of incomes that are taxed at specific rates. The applicable tax rate not only depends on the taxable income but also on your income tax filing status such as single, married filing separately, married filing jointly, head of household and qualifying widower with dependent child.
Let's take a look at how you are taxed. For filing status as single, the tax brackets as of year 2010 are the following:
$0 < income = $8,375 = 10% of the amount over $0
$8,375 < income = $34,000 = $837.50 plus 15% of the amount over $8,375
$34,000 < income = $82,400 = $4,681.25 plus 25% of the amount over $34,000
$82,400 < income = $171,850 = $16,781.25 plus 28% of the amount over $82,400
$171,850 < income = $373,650 = $41,827.25 plus 33% of the amount over $171,850
$373,650 < income = $108,421.25 plus 35% of the amount over $373,650
The first bracket reads that for taxable income greater than $0 but not over $ 8,375, the tax rate is 10%. But notice that the tax rate on the second bracket is $837.50 plus 15% of the amount over $8,375; from this bracket onwards you will see that you are taxed actually in a lower rate than the percent indicated. Take for example Leah with taxable income of $50,000 would be at the third bracket which others call the 25% bracket. A lot of people get the wrong idea that Leah's income is taxed at 25%. In truth, the overall amount is lesser than 25% of $50,000. Here's a detailed calculation of Leah's tax:
1. Leah's first $8,375 of income is taxed at 10% which is equal to $837.50.
2. Her next $8,375 to $34,000 is taxed at 15% which yields $3,843.75.
3. And from $34,000 to $50,000 Leah is taxed at 25% which results to $4,000.
4. The total tax is then $837.50 + $3,843.75 + $4,000 = $8681.25.
So you see, the 25% of $50,000 which is $12,500 is a lot higher compared to the actual tax which is $8681.25.
Calculations of tax applicable for married filing separately, married filing jointly, head of household and qualifying widower with dependent child are still the same as above. They will of course differ in the range of income on each bracket and the corresponding tax rate. For bracket details on the other filing status, please visit the government's official website on taxation: http://www.irs.gov.
Aside from knowing how tax brackets work, it's also important to do some research on tax exemptions and tax credits. You may be paying more than you should be.
Few Things To Know About Tax Deductions Quickbooks Help Equals Tax Savings All Is Not Lost! Tax Payment Options The Nfl Film Had The Honor To Win An Academy Award Your Tax Strategy Questions Answered Claiming Tax Back When Leaving The Uk Cantor & Webb P.A. Further Expands Its International Tax Department Singapore Taxes Support Economic Growth There is Always an IRS Tax Relief Irs Tax Lien Attorneys More On Unexpected Phantom Income Tax Gains Singapore Corporate Tax Essentials Which Will Opt For The Recommended Nfl Hats That You Follow The Form