Just Because You Break into the 35% Tax Bracket, Not ALL of Your Income is Taxed At 35%!
Posted 05-05-2015 at 08:12 PM by Utopian Slums
In my experience, most people in the USA do not understand that we have a graduated (or "progressive") income tax"
And why would we? Not all of us do our own taxes and many of us hate math.
We often hear from politicians that the rich are taxes "more." Yet in reality, we all are taxed "more."
After the impact of sleep disorders and sleep deprivation on society, this is the one thing that i am most passionate about: Educating people on The USA's (Graduated) Income Tax System. The word "progressive" is often used but I think that word has negative connotations for some. "Marginal" is also used but that word is not used frequently enough for me to assimilate. It's easier for me to think of it as "graduated."
I think eFile does a pretty good job explaining it.
From website (emphasis my own):
"If your marginal tax rate is, for example, 25%. That doesn't mean that ALL of your income is taxed at 25%. Income is actually taxed at different rates. Here's how it works:
Say that your income for 2014 is $40,000 and your filing status is single. Your first $9,075 will be taxed at 10%. Every dollar from $9,076 to $36,900 will be taxed at 15%. And every dollar from $36,900 to $40,000 will be taxed at 25%.
Here is a link to the rates:
Federal Individual Income Tax Rate Schedule-Tax Brackets
In other words, if a single person says, "I'm in the 28 percent tax bracket," this means that only his/her income over $89,351 is taxed at 28%. All other income is taxed just like everyone else using the rates below. (i.e., Your first $9,075 will be taxed at 10%. Every dollar from $9,076 to $36,900 will be taxed at 15%. And every dollar from $36,900 to $40,000 will be taxed at 25%.
For the sake of explanation, i transcribed one part of the chart. Here is a chart for the tax rates of a single person for 2014. This applies to every singleton whether they earn $2.00 or $2,000,000.
Tax Rate Single Tax Filer 2014
10% $1 - $9,075
15% $9,076-$36,900
25% $36,901 to $89,350
28% $89,351 to $186,350
33% $186,351 to $405,100
35% $405,101 to $406,750
39.6% $406,750+
An individual pays tax at a given bracket only for each dollar within that tax bracket's range. Where people get confused is they think that "if i break into the next tax bracket, i will need to pay that higher percentage on all of my income." This is not true!
Outside of tax deductions and credits, we all pay the same amount per dollar no matter how much we make!
I would like to think that if more people understood this comment, then gripes about "taxes on the rich" would settle down. People could easily use the same argument for the 28, 25 or even 15% tax bracket but they don't. Why is this? Are all who complain making over $406,750 or $405,101 per year? I doubt it. I suspect they just don't (yet) understand our tax system.
And why would we? Not all of us do our own taxes and many of us hate math.
We often hear from politicians that the rich are taxes "more." Yet in reality, we all are taxed "more."
After the impact of sleep disorders and sleep deprivation on society, this is the one thing that i am most passionate about: Educating people on The USA's (Graduated) Income Tax System. The word "progressive" is often used but I think that word has negative connotations for some. "Marginal" is also used but that word is not used frequently enough for me to assimilate. It's easier for me to think of it as "graduated."
I think eFile does a pretty good job explaining it.
From website (emphasis my own):
"If your marginal tax rate is, for example, 25%. That doesn't mean that ALL of your income is taxed at 25%. Income is actually taxed at different rates. Here's how it works:
Say that your income for 2014 is $40,000 and your filing status is single. Your first $9,075 will be taxed at 10%. Every dollar from $9,076 to $36,900 will be taxed at 15%. And every dollar from $36,900 to $40,000 will be taxed at 25%.
Here is a link to the rates:
Federal Individual Income Tax Rate Schedule-Tax Brackets
In other words, if a single person says, "I'm in the 28 percent tax bracket," this means that only his/her income over $89,351 is taxed at 28%. All other income is taxed just like everyone else using the rates below. (i.e., Your first $9,075 will be taxed at 10%. Every dollar from $9,076 to $36,900 will be taxed at 15%. And every dollar from $36,900 to $40,000 will be taxed at 25%.
For the sake of explanation, i transcribed one part of the chart. Here is a chart for the tax rates of a single person for 2014. This applies to every singleton whether they earn $2.00 or $2,000,000.
Tax Rate Single Tax Filer 2014
10% $1 - $9,075
15% $9,076-$36,900
25% $36,901 to $89,350
28% $89,351 to $186,350
33% $186,351 to $405,100
35% $405,101 to $406,750
39.6% $406,750+
An individual pays tax at a given bracket only for each dollar within that tax bracket's range. Where people get confused is they think that "if i break into the next tax bracket, i will need to pay that higher percentage on all of my income." This is not true!
Outside of tax deductions and credits, we all pay the same amount per dollar no matter how much we make!
I would like to think that if more people understood this comment, then gripes about "taxes on the rich" would settle down. People could easily use the same argument for the 28, 25 or even 15% tax bracket but they don't. Why is this? Are all who complain making over $406,750 or $405,101 per year? I doubt it. I suspect they just don't (yet) understand our tax system.
