Tax Brackets Explained
I knew that there are different tax brackets, but I have never paid attention to the details since my husband and I weren’t making enough to get taxed more than 15% once you took off the standard deductions from our taxable income. Now that I’ve started making more from my online business than I ever did with my cubicle day job, my ears have perked up to tax bracket info. Since our tax bracket may change soon, I decided that I needed tax brackets explained to me. I want to know how our tax liability will be affected by my higher income.
What Are Tax Brackets?
Tax brackets help individual citizens determine the amount of their tax burden for the year. They are used by the Federal government to determine the total amount of taxes that you will owe based on the amount of taxable income that you earned during the year. The more you make, the higher your tax bracket. Keep in mind that you won’t lose money overall by being in a higher tax bracket, but the amount that you earned between one bracket and another will be taxed at their marginal rates, hence the term “marginal tax rates”.
For example, my husband and I had a taxable income less than $69,000 for the last five years, so we were mainly in the 15% tax bracket. If we have a taxable income after deductions of $80,000 this year, only the excess $11,000 will be taxed at the higher 25% rate. This means that it isn’t financially awful to be in a higher tax bracket – we will still net more overall.
Current Tax Brackets
The tax brackets in the United States currently range from a minimal
rate of 10% to a maximum tax rate of 35%. Here are the current tax brackets explained.
- The 10% bracket is for single individuals and married individuals filing separately that make between $0 and $8,500. Married filing jointly households qualify when they earn up to $17,000.
- The 15% bracket is for the income for single individuals and married individuals filing separately between $8,500 and $34,500. The income for married filing jointly households will be taxed at 15% between $17,000 and $69,000.
- The 25% bracket is for the income for single individuals and married individuals filing separately between $34,500 and $83,600. The income for married filing jointly households will be taxed at 25% between $69,000 and $139,500.
- The 28% bracket is for the income for single individuals and married individuals filing separately between $83,600 and $174,400. The income for married filing jointly households will be taxed at 28% between $139,500 and $212,300.
- The 33% bracket is for the income for single individuals and married individuals filing separately between $174,400 and $379,150. The income for married filing jointly households will be taxed at 33% between $212,300 and $379,150.
- The 35% bracket is for all income at $379,150 and above.
Why Tax Brackets Matter
The amount of your adjusted gross income will determine the total dollar amount of taxes that you will have to pay to the federal government in a given year. Individuals in the highest tax brackets will have to pay a larger marginal tax rate. Individuals in the lowest tax brackets will have to pay a smaller marginal tax than the other taxed groups. In short, the tax brackets matter since how much you pay overall affects your personal finances.Source: stupidcents.com