Percentage of Taxes Paid by Income Level
Federal income taxes are calculated using set percentages applied to specific income levels, called tax brackets. Each person's income will fall into a specific tax bracket, which can aid in estimating the amount of tax owed, assist in completing a tax return, or doing tax planning for the coming year. Tax brackets receive adjustments periodically depending on legislative policies and may have further changes in the future.
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Tax Percentage Brackets
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The federal tax bracket percentage is the rate each taxpayer will pay on the last dollar they earn in the fiscal year. Six tax percentage brackets exist, applied to different levels of income. The dollar amounts in each bracket get updated annually to reflect inflation. For taxpayers with a filing status of single for the year 2011, the lowest tax bracket is 10 percent, and it is applied to taxable income from $0 to $8,500. The 15 percent bracket applies to income between $8,500 and $34,500; the 25 percent bracket covers income between $34,500 and $83,600; the 28 percent tax bracket covers taxable income from $83,600 to $174,400; the 33 percent bracket applies to taxable income from $174,400 to $379,150 and finally, the 35 percent bracket applies to taxable income from $379,150 and above.
For tax bracket information for a different filing status such as married filing jointly or married filing single, tax brackets and a tax percentage calculator are available online at MoneyChimp.com.
Application of Tax Brackets
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Even though a taxpayer may fall in a certain tax bracket, as a percentage of his total income, his tax rate will compute to a slightly smaller percentage. For example, if, after taking all exemptions and deductions, an individual had an income of exactly $100,000 and filed her taxes as a single taxpayer, she would apply the percentage brackets according to her income level as follows: The first $8,500 of income would be subject to the 10 percent bracket; the income higher than $8,500 but lower than $34,500 would be subject to the 15 percent bracket, and so on until the last dollar earned, which would fall in the 28 percent tax bracket. Consequently, even though the taxpayer falls into the 28 percent tax bracket based on her highest level of income, when the actual tax is calculated and added up, it results in a real tax percentage of 21.62 percent.
This tax calculation does not include taxes for Social Security and Medicare, or any qualified dividends or long-term capital gains, since these get calculated separately.
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Taxable Income
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An individual's regularly taxed income less any adjustments, exemptions or deductions taken on their tax return is defined as his taxable income.
Tax Rate Changes
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Tax brackets have remained relatively stable in recent years, with changes structured to ease the burden on lower-income families and give more of the tax burden to wealthy taxpayers. 1993 saw two new tax brackets created to increase the proportionate share of taxes paid by the wealthy, with the highest percentage brackets set at 39.6 percent through 2000, declining to 39.1 percent in 2001, declining again to 30.6 percent in 2002 and stabilizing at 35 percent through 2010. Additionally, in 2002 a 10 percent tax bracket was created for lower-income taxpayers, which still existed through the end of 2010. All other tax brackets received a two percent reduction in 2003, which corresponds with the decrease in the top bracket for the wealthy.
Future Tax Rates
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The tax Relief Act for 2010 kept tax rates stable at 2010 levels, and will carry them through to 2012. Originally, a planned rate increase would have returned the percentages to tax rates in effect before 2001.
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