|
As the close of the year draws near, many taxpayers are concerned about limiting their tax liability in 2012. By understanding their incremental federal income tax rates, taxpayers can better understand the benefit received from a potential tax deduction.
2012 Income Tax Rate Schedules
Income tax rate tables, or tax brackets, are published each year by the federal government through the Internal Revenue Service or IRS. These tables outline for taxpayers the tax owed and incremental tax rates. These tax schedules can also be used to estimate your potential tax liability in 2012. However, more accurate estimates can be achieved by completing a Form 1040.
Reading a Tax Rate Schedule
Reading a tax rate schedule is a fairly simple process. First you need to figure out your total federal taxable income. Again, IRS Form 1040 can help you figure out that value more accurately. Once you know your taxable income, you need to know which tax rate table to use. There are four schedules depending on your tax status - such as Single or Married Filing Jointly. If you don't know your tax filing status, the instructions for Form 1040 can help you figure that out.
2012 Single - Rate Schedule X
| Taxable income is over - |
But not over - |
The tax is: |
Of the amount over - |
| $0 |
$8,700 |
$0 + 10% |
$0 |
| 8,700 |
8,700 |
870.00 + 15% |
8,700 |
| 35,350 |
35,350 |
4,867.50 + 25% |
35,350 |
| 85,650 |
85,650 |
17,442.50 + 28% |
85,650 |
| 178,650 |
178,650 |
43,482.50 + 33% |
178,650 |
| 388,350 |
- |
112,683.50 + 35% |
388,350 |
2012 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 |
$17,400 |
$0 + 10% |
$0 |
| 17,400 |
70,700 |
1,740.00 + 15% |
17,400 |
| 70,700 |
142,700 |
9,735.00 + 25% |
70,700 |
| 142,700 |
217,450 |
27,735.00 + 28% |
142,700 |
| 217,450 |
388,350 |
48,665.00 + 33% |
217,450 |
| 388,350 |
- |
105,062.00 + 35% |
388,350 |
2012 Married filing separately - Rate Schedule Y-2
| Taxable income is over - |
But not over - |
The tax is: |
Of the amount over - |
| $0 |
$8,700 |
$0 + 10% |
$0 |
| 8,700 |
35,350 |
870.00 + 15% |
8,700 |
| 35,350 |
71,350 |
4,867.50 + 25% |
35,350 |
| 71,350 |
108,725 |
13,867.50 + 28% |
71,350 |
| 108,725 |
194,175 |
24,332.50 + 33% |
108,725 |
| 194,175 |
- |
52,531.00 + 35% |
194,175 |
2012 Head of Household - Rate Schedule Z
| Taxable income is over - |
But not over - |
The tax is: |
Of the amount over - |
| $0 |
$12,400 |
$0 + 10% |
$0 |
| 12,400 |
47,350 |
1,240.00 + 15% |
12,400 |
| 47,350 |
122,300 |
6,482.50 + 25% |
47,350 |
| 122,300 |
198,050 |
25,220.00 + 28% |
122,300 |
| 198,050 |
388,350 |
46,430.00 + 33% |
198,050 |
| 388,350 |
- |
109,229.00 + 35% |
388,350 |
Tax Rate Example Calculation
Now that you've seen the tax rate tables, let's run through a quick example to help you figure out your incremental tax bracket in 2012. In this example, let's say that your filing status is Married Filing Jointly. That means you'll be using Schedule Y-1 above. If your federally taxable income in 2012 is $100,000, then the tax owed is calculated as follows:
You're going to use the third row of the Y-1 tax rate schedule because your income falls between $70,700 and $142,700. That puts you in the 25% tax bracket. Calculating your tax liability from that table:
$9,735.00 + 25% x ($100,000 - $70,700)
$9,735.00 + 0.25 x $29,300
$9,735.00 + $7,325.00 = $17,060.00
Marginal Tax Rates
If you understand how to read these tax rate tables, then you'll also understand why they are referred to as marginal tax rates. Within each rate schedule you can find your incremental tax rate, or marginal rate of tax. This is the rate at which each incremental dollar earned is taxed. In the above example, the marginal tax rate was 25%.
One of the more common misconceptions is that if you earn more money, then all of the income is taxed at the higher rate. The above tables demonstrate that this is simply not true. You are taxed at an incremental rate on marginal income. That means you're taking home less pay for each hour worked, but you are certainly bringing home more money.
About the Author - Federal Income Tax Rates
Copyright © 2005 - 2011 Money-Zine.com
|
Home 
Financial Planning 
