That calculation results in $21,293, or an effective (not marginal) tax rate of 21.2 percent. You would owe 10 percent of $8,925, 15 percent of $27,325 (the difference between the top and the threshold of the second tax bracket), 25 percent of $51,600, and 28 percent of $12,150 (the difference between your income and the threshold of the third tax bracket). To help put it into perspective, here’s an example published in Forbes last year that assumes you earn $100,000 and are in the 28 percent tax bracket. For a single filer, that means you would pay 39.6 percent in taxes on any income in excess of $400,0. You only pay that rate on the portion of your income that falls into that tax bracket.
That means, if you fall into the highest tax bracket, you aren’t paying 39.6 percent on all of your income. In addition, it’s important to know that the tax rates above are marginal. Your bracket can also depend on your exemptions and deductions, which bring your taxable income down. Your tax bracket is determined by both your income and your filing status. Here are the brackets for your 2013 taxes (those would be the ones you’re working on right now): The current federal income tax system is progressive, meaning the more you earn, the higher percentage of taxes you pay. Basics of our progressive systemīefore delving into the pros and cons of a flat tax, let’s go over how the current system works first.
Wouldn’t it be easier if we eliminated 73,950 pages of hoops and simply taxed everyone using the same percentage? Then there are the exemptions, the itemized deductions and the special tax rules.Īnd when you think you’re starting to understand how the system works, the government likes to throw in a few curveballs, like the alternative minimum tax. It includes seven tax rates, four standard deductions and at least a dozen tax credits for individuals. With tax season upon us, you may be wondering why the government has to make things so complex.Īccording to the CCH Standard Federal Tax Reporter, the tax code clocks in at an astounding 73,954 pages as of 2013.
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