Individuals in the United States are progressively taxed. This means that the amount of tax due by the payee goes up as the amount to be taxed increases. In other words, the more you make, the more you pay. For many, this can be complicated and time consuming to calculate. The IRS Tax Rate Schedules referenced below can help give you an idea as to how this amount is figured using your taxable income.These charts are available at the end of the Form 1040 instructions.
In 1913 the 16th Amendment was ratified to empower Congress to tax ”incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." These laws are now embodied as Title 26 of the U.S. code. This means that all residents and citizens are subject to U.S. tax laws. The revenues generated from this are used to fund the federal budget and all of the programs and services they provide.
If your filing status is single on your income tax return, your taxes are calculated based on the Schedule X chart. This chart consists of six levels with the tax rate beginning at 10 percent and increasing to 35 percent. The 10 percent rate is the easiest to calculate as it is a flat 10 percent of your taxable income. You would fall into this category if, after deductions, you did not earn over $8,500. The 15 percent bracket allows a taxpayer to have between $8,500 and $34,500 of taxable income. In this case, you would pay $850 (which is 10 percent of the first $8,500) plus15 percent of the taxable income earned over $8,500.
Married Filing Jointly
If your filing status is married filing jointly, your taxes are calculated based on the Schedule Y-1 chart. In this case, both gross incomes would be added together before tax deductions are made. After your taxable income is calculated, percentage of tax due can be calculated. The limit for the 10 percent bracket is $17,000 your combined income. As your income increases to up to $69,000, the amount of income tax increases to $1,700 plus 15 percent of the amount of income earned over $17,000. If, between both spouses, the total taxable income falls between $69,000 and $139,350, the tax due is $9,500 plus 25 percent of the amount over $69,000.
Married Filing Separately
If your filing status is married filing separately, your taxes are calculated based on the Schedule Y-2 chart. Each spouse calculates taxable income individually. The 10% and 15% brackets are the same as if filing single. After this, however, the numbers change. The 25 percent amount due occurs if taxable income is between $34,500 and $69,675. For example, if after deductions, you earned $50,000 of taxable income, you would calculate the amount by adding $4,750 to 25 percent of $50,000 - $34,500. The equation would look like 4,750 + .25(50,000 - 34,500). The amount owed would be $8,625.
Head of Household
If your filing status is head of household, your taxes are calculated based on the Schedule Z chart. The 10 percent bracket consists of taxable income up to $12,150. Amount due goes up to 15 percent if your taxable income falls between $12,150 and $46,250. It would be calculated as $1,215 plus 15 percent of the amount over $12,150. If taxable income is between $46,250 and $119,400, the percentage of tax due on this amount goes up to 25 percent. The highest bracket, 35 percent, happens after taxable income hits $379,150.
These tax rates are based on the 2011 Federal Tax Schedule. Amounts are periodically updated to adjust to the current cost of living. All of the above percentages apply AFTER deductions and BEFORE tax credits. It is also important to note that these are only the federal rates. Most states have their own income tax that is filed and paid separately. Be sure to know your current states law regarding this. Failure to pay can result in fines, imprisonment, or both.
Tax laws and regulations are seldom are cut and dry. They generally vary by the individual’s multiple variables. The IRS charts are to be used with “taxable income” amounts only. This means all income, such as salary, interest, pension, annuities, and business income, minus all deductions will calculate taxes owed. From this point, tax credits can still be used to reduce the amount owed. A tax professional should be consulted with specific questions.