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 and any withdrawals you might have taken from retirement plans during the current year. The ability to calculate your actual or estimated tax bracket can be helpful in financial planning, such as calculating the amount of retirement savings you can afford to withdraw during the year, or calculating the amount you might to contribute to a tax-deferred savings plan.
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Instructions
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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.
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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.
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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.
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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.
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5
Go to IRS.gov and navigate to the federal tax table. You can find a link to the 2010 tax tables in the References section, but be sure to use the current year's tax rates or a future year if it is already posted.
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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.
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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 withdrawals increase the total income you have and can push you into a higher tax bracket for that calendar year.
Dividends and long-term capital gains will not push you into a higher tax bracket -- they are not considered ordinary income, and are taxed at special rates.
