How to Calculate Tax Brackets

Though it can change year to year, your federal income tax bracket can be calculated at any time. To calculate a tax bracket, you will need to consider your total estimated taxable income (salaries and wages) and any withdrawals (retirement and savings accounts) for the current year. The ability to calculate your actual or estimated tax bracket can be helpful in financial planning such as retirement savings or if you anticipate paying taxes at the end of the year.

Difficulty: Easy

Instructions

How to Calculate Your Tax Bracket

1. Estimate your taxable income for the current calendar year. Take an overall average of your monthly income from the months that have passed and multiply it by 12 for the year. Include all salaries, wages and tips. If your annual taxable income is not anticipated to change, use the exact figures from the previous year's tax return or W-2 form.

2. Consider any retirement plan distributions you will be taking, if applicable. Include any retirement account withdrawal minimums as they are considered ordinary income and are taxable. Treat any lump-sum withdrawals from a retirement plan as taxable income as well.

3. Combine your taxable income from Step 1 with any retirement income from Step 2. The total will be considered your adjusted gross income, and will be used in determining your income tax bracket.

4. Determine your income tax filing status at the time of your retirement. Use your marital status as of the last day of that year. Choose one of five options: Married Filing Jointly, Married Filing Separately, Qualified Widow(er), Head of Household or Single.

5. Go to www.irs.gov and navigate to the Federal Tax Rate Schedule. Use the current year's tax rates or future year if it is already posted.

6. Review the tax rate schedule using your calculated taxable income and filing status as a guide. Your income and filing status will converge on a single tax bracket. For example, if using the 2008 Federal Tax Rate Schedule, notice that a filing status of "single" and an adjusted gross income between $32,550 and $78,850 will be identified by the 25 percent income tax bracket.

Tips & Warnings

• Retirement plan withdrawals are always considered ordinary income, especially if they are lump-sum withdrawals. Regardless of whether the withdrawal is taxable (standard IRA) or not taxable (Roth IRA), the amount of the withdrawal(s) increase the total income you have and can push you into a higher tax bracket for that calendar year. The Jobs and Growth Tax Relief Reconciliation Act of 2003, which provided tax cuts and lowered income tax brackets, is set to expire in 2011. If not renewed, income tax levels are predicted to rise to cover the costs of federal Social Security, Medicare and Medicaid programs.
• Dependents and deductions are not a factor when calculating your income tax bracket; neither are dividends paid nor interest earned. These additional factors can change frequently, and therefore should only be used when filing your actual taxes.

Resources

• What is Your Tax Bracket? Finding your Average and Marginal Tax Rate
• Finding your Tax Bracket and Understanding It (includes tax schedules for 2007-2009)