Info: Tax Bracket and Marginal Tax Rate May 11, 2006
I’ve mentioned before that in some cases the added tax you pay when your income goes up isn’t the same as your tax bracket. Some don’t realize that your tax bracket is the rate you pay on the “last dollar” you earn. As a percentage of your income, your tax rate is generally less than that.
For example, suppose your taxable income (after deductions and exemptions) was exactly $100,000 in 2005 and your status was Married filing separately; then your tax would be calculated like this:
| ( | $ 7,300 - | 0 ) | x .10 : | $ 730 |
| ( | 29,700 - | 7,300 ) | x .15 : | 3,360 |
| ( | 59,975 - | 29,700 ) | x .25 : | 7,568.75 |
| ( | 91,400 - | 59,975 ) | x .28 : | 8,799 |
| ( | 100,000 - | 91,400 ) | x .33 : | 2,838 |
| Total: | $ 23,295.75 | |||
This puts you in the 33% tax bracket; but as a percentage of your income, your tax is about 23.3%.
Yesterday’s announcement on the tax cuts in the US extends to 2010 the 15% tax rate on most dividends and capital gains, which benefits the wealthier tax payers, who would otherwise pay the 35%, which is the tax bracket for married earners of over $168,275 or single earner making over $336,550.
Related:
Common Tax Bracket Mistakes