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 Tax Brackets is the term generally used to describe the incremental tax you pay on each additional dollar of earnings. For example, if you are in the 28% tax bracket, then for each additional dollar of income you had in 2004, you would owe $0.28 in federal income taxes.
Federal Income Tax Brackets
As a result of President Bush's tax reform agenda, tax brackets for certain individuals have been changing since 2001. A 10% tax bracket was even added by President Bush. Currently tax brackets range from 10% - 35% and knowing the tax bracket that you fall in can help you to understand the tax relief you will get from things like property taxes or even investing in an IRA.
The federal income tax brackets for 2004 are the following by tax filing status:
Single - Rate Schedule X
| Taxable income is over - |
But not over - |
The tax is: |
Of the amount over - |
| $0 |
$7,150 |
$0 + 10% |
$0 |
| 7,150 |
29,050 |
715.00 + 15% |
7,150 |
| 29,050 |
70,350 |
4,000.00 + 25% |
29,050 |
| 70,350 |
146,750 |
14,325.00 + 28% |
70,350 |
| 146,750 |
319,100 |
35,717.00 + 33% |
146,750 |
| 319,100 |
- |
92,592.50 + 35% |
319,100 |
Married filling jointly or Qualifying widow(er) - Rate Schedule Y-1
| Taxable income is over - |
But not over - |
The tax is: |
Of the amount over - |
| $0 |
$14,300 |
$0 + 10% |
$0 |
| 14,300 |
58,100 |
1,430.00 + 15% |
14,300 |
| 58,100 |
117,250 |
8,000.00 + 25% |
58,100 |
| 117,250 |
178,650 |
22,787.50 + 28% |
117,250 |
| 178,650 |
319,100 |
39,979.50 + 33% |
178,650 |
| 319,100 |
- |
86,328.00 + 35% |
319,100 |
Married filing separately - Rate Schedule Y-2
| Taxable income is over - |
But not over - |
The tax is: |
Of the amount over - |
| $0 |
$7,150 |
$0 + 10% |
$0 |
| 7,150 |
29,050 |
715.00 + 15% |
7,150 |
| 29,050 |
58,625 |
4,000.00 + 25% |
29,050 |
| 58,625 |
89,325 |
11,383.75 + 28% |
58,625 |
| 89,325 |
159,550 |
19,989.75 + 33% |
89,325 |
| 159,550 |
- |
43,164.00 + 35% |
159,550 |
Head of Household - Rate Schedule Z
| Taxable income is over - |
But not over - |
The tax is: |
Of the amount over - |
| $0 |
$10,200 |
$0 + 10% |
$0 |
| 10,200 |
38,900 |
1,020.00 + 15% |
10,200 |
| 38,900 |
100,500 |
5,325.00 + 25% |
38,900 |
| 100,500 |
162,700 |
20,725.00 + 28% |
100,500 |
| 162,700 |
319,100 |
38,141.00 + 33% |
162,700 |
| 319,100 |
- |
89,753.00 + 35% |
319,100 |
Tax Bracket Example
Just to make sure it is clear how to use these tables of tax brackets, let's run through an example. Let's say that your tax filing status is Head of Household and your taxable income is $120,000. By looking at the above table, we can calculate your federal income taxes as follows:
- $20,725 + 28% x ($120,000 - $100,500)
- $20,725 + 0.28 x $19,500
- $20,725 + $5,460 = $26,185
The above example illustrates both how to calculate your federal income taxes from the tax brackets above and how to find the tax bracket you fall into. Keep in mind that the tax bracket applies only to incremental earnings or income.
Tax Brackets and Incremental Income
Some people get confused and think that if they earn more they will fall into a higher tax bracket and all of their income is subject to the higher rate. This is simply not true, only the additional income that pushes them into the next bracket is subject to tax at that percentage level. That is why tax brackets are sometimes referred to as a marginal, or incremental, tax rate.
A second misconception is that you can find your tax bracket by simply looking up your gross income or annual salary. While that approach might get you pretty close to the correct bracket, a tax table is used to determine the federal taxes due after adjustments for additional sources of income such as interest earned and expenses such as property taxes. The correct tax table applies to your form 1040 line 42 - Taxable Income.
About the Author - 2004 Tax Brackets
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