2016 Federal Income Tax Rates

As the close of the year draws near, taxpayers grow concerned about limiting their tax liability in 2016. By understanding their incremental federal income tax rates, individuals can appreciate the benefit received from a potential deduction.

2016 Income Tax Rate Schedules

Income tax rate tables, or brackets, are published each year by the federal government through the Internal Revenue Service or IRS. These tables outline the tax owed and incremental tax rates.  These schedules can also be used to estimate a potential income tax liability in 2016.  However, more accurate estimates can be achieved by completing Form 1040.

Information on the 2015 schedules can be found in our article:  Tax Brackets, while our Tax Rate Calculator can be used to estimate federal income taxes owed for the years 2012 through 2016.

Reading a Tax Rate Schedule

The American Taxpayer Relief Act of 2012 added a seventh bracket (39.6%) in 2013.  The remaining six rates were unchanged.  Reading a tax rate schedule is a fairly simple process.

The first step is to calculate an individual's total federal taxable income.  Again, IRS Form 1040 can help individuals determine that value more accurately.  Once the taxable income is known, the next step involves selecting the proper rate table.

There are four schedules, depending on the individual's filing status such as Single or Married, Filing Jointly.  The instructions for Form 1040 explain the process for selecting the correct status.

The tables that follow provide the 2016 income tax brackets.

2016 Unmarried Individuals: Rate Schedule X

Taxable income is over - But not over - The tax is: Of the amount over -
$0 $9,275 $0 + 10% $0
9,275 37,650 927.50 + 15% 9,275
37,650 91,150 5,183.75 + 25% 37,650
91,150 190,150 18,558.75 + 28% 91,150
190,150 413,350 46,278.75 + 33% 190,150
413,350 415,050 119,934.75 + 35% 413,350
415,050 - 120,529.75 + 39.6% 415,050

2016 Married Individuals Filing Join Returns or Surviving Spouses: Rate Schedule Y-1

Taxable income is over - But not over - The tax is: Of the amount over -
$0 $18,550 $0 + 10% $0
18,550 75,300 1,855.00 + 15% 18,550
75,300 151,900 10,367.50 + 25% 75,300
151,900 231,450 29,517.50 + 28% 151,900
231,450 413,350 51,791.50 + 33% 231,450
413,350 466,950 111,818.50 + 35% 413,350
466,950  - 130,578.50 + 39.6% 466,950

2016 Married Filing Separately: Rate Schedule Y-2

Taxable income is over - But not over - The tax is: Of the amount over -
$0 $9,275 $0 + 10% $0
9,275 37,650 927.50 + 15% 9,275
37,650 75,950 5,183.75 + 25% 37,650
75,950 115,725 14,758.75 + 28% 75,950
115,725 206,675 25,895.75 + 33% 115,725
206,675 233,475 55,909.25 + 35% 206,675
233,475  - 65,289.25 + 39.6% 233,475

2016 Head of Household: Rate Schedule Z

Taxable income is over - But not over - The tax is: Of the amount over -
$0 $13,250 $0 + 10% $0
13,250 50,400 1,325.00 + 15% 13,250
50,400 130,150 6,897.50 + 25% 50,400
130,150 210,800 26,835.00 + 28% 130,150
210,800 413,350 49,417.00 + 33% 210,800
413,350 441,000 116,258.50 + 35% 413,350
441,000 - 125,936.00 + 39.6% 441,000

Tax Rate Example Calculation H4

We're going to run through a quick example to illustrate how the above tables are used to determine a taxpayer's incremental tax bracket in 2016.  In this example, let's say that Bill's filing status is Married Filing Jointly.  That means he will be using Schedule Y-1 above.  If Bill's federally taxable income in 2016 is $100,000, then the tax owed is calculated as follows:

Bill is going to use the third row of the Y-1 schedule because his income falls between $75,300 and $151,900.  That puts Bill in the 25% tax bracket.  Calculating the tax liability from that table:

  • $10,367.50 + 25% x ($100,000 - $75,300)
  • $10,367.50 + 0.25 x $24,700
  • $10,367.50 + $6,175.00 = $16,542.50

Marginal Tax Rates

Anyone that understands how to use these tables also understands why they are referred to as marginal tax rates.  Within each rate schedule it's possible to find the taxpayer's 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 someone earns more money, then all of the income is taxed at the higher rate.  The above tables demonstrate this is simply not true.  Individuals are taxed at an incremental rate on marginal income.  That means an individual might be taking home less pay for each additional hour worked, but they are certainly bringing home more money.


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