With tax season underway, many people find themselves concerned about their tax bracket. The federal income tax table changes every year and it is important to understand how much of your income is taxable. Taxable income is very different from gross income. Gross income is the sum of all the money you earn in any given year. At the most basic level, taxable income is your gross income minus your standard deductions. The deductions will vary, depending on your filing status. You can file as single, married filing jointly, married filing separately, head of household or a qualified widower. You can also file personal exemptions for your dependents. The Internal Revenue Code is complicated. The best way to get detailed information about your specific tax situation is to consult with a tax professional.

The Tax Table

The federal income tax table reports marginal tax rates on taxable income. Federal taxes are not average tax rates. Every income level, even if it is within a one dollar difference, is taxed at a different average rate. The table below shows the marginal tax rates for 2010 income.

Marginal Tax Rate

Filing as Single

Filing as Married Filing Jointly or Qualified Widow(er)

Filing as Married Filing Separately

Filing as Head of Household

10%

$0 to $8,375

$0 to $16,750

$0 to $8,375

$0 to $11,950

15%

$8,376 to $34,000

$16,751 to $68,000

$8,376 to $34,000

$11,951 to $45,550

25%

$34,001 to $82,400

$68,001 to $137,300

$34,001 to $68,650

$45,551 to $117,650

28%

$82,401 to $171,850

$137,301 to $209,250

$68,651 to $104,625

$117,651 to $190,550

33%

$171,851 to $373,650

$209,251 to $373,650

$104,626 to $186,825

$190,551 to $373,650

35%

$373,651 and higher

$373,651 and higher

$186,826 and higher

$373,651 and higher

A Few Examples

Suppose an individual files as single and makes $38,000 in taxable income. Their taxes will be calculated by using:

  • 10 % x $8,375 + 15 percent * ($34,000 - $8,375) + 25 % x ($38,000 - $34,000) = $5,681.2

Since each tax bracket applies only for the level of income listed. This individual falls into the 25 percent tax bracket. The highest marginal tax rate is 25 percent. The average tax rate can be calculated by dividing the taxable income: $5,681.25 / $38,000 = 14.95 percent.

Average tax rates will be lower than marginal tax rates. Because of this, there is no need to try to hit a “target” income level that will have a tax benefit.

Consider another example, in this case we will review the tax rate of a married couple that files jointly with a combined taxable income of $76,000. The couple’s taxes owed are calculated by using:

  • 10 % x $16,750 + 15 % x ($68,000 - $16,750) + 25 %x ($76,000 - $68,000) = $11,362.50.

It is important to remember that a higher tax bracket will only come into effect with the income that falls within that range. In other words, if there is only a $100. difference of the income, only that portion of the income will be taxed in the higher bracket.

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