How to Calculate Federal Income Tax – Rates Table & Tax Brackets

income tax bracketsUnited States income tax laws are based on a progressive tax system. Essentially, this means that everyone pays a percentage of their income to the government – a greater amount when they make more money, and fewer tax dollars when they make less money. Theoretically, this system distributes the tax burden more heavily onto those who have more, and thus are more able to contribute. Likewise, the burden is shifted away from those who can’t afford as much.

Over time, tax deductions, credits, exemptions, and loopholes have modified and complicated our system. However, the basics aren’t overly complex. The American income tax system uses a relatively simple series of “stepped” tax rates to determine how much you owe.

How Much You’re Taxed

Your total tax owed is based on your adjusted gross income. When you fill out Form 1040 (or when your tax preparation software program does so for you), you enter appropriate totals for all income you earned from various categories, such as wages, alimony, unemployment, and business profits. Then, you take an assortment of deductions – contributing to an IRA or paying student loan interest, for example. Deductions mean that you’re reducing your taxable income, ultimately lowering the amount you pay in taxes. You also must deduct money from your income for your personal tax exemption as well as any dependents’ exemptions.

Once you add up all your income and subtract your above-the-line deductions, such as IRA contributions, you end up with your adjusted gross income, or AGI. While this figure is used to determine eligibility for certain tax credits, it’s not your taxable income. From your AGI, you deduct your standard or itemized deductions and exemptions to arrive at your taxable income.

How Much You Owe

After you figure out your taxable income, you can determine how much you owe by using the tax tables included in the Form 1040 instructions. Though it looks like a complicated table of calculations, it’s really a very straightforward approach. You just look up your income, find the column with your filing status (single vs. head of household, or married filing jointly vs. married filing separately), and then find the amount of tax you owe.

For simplicity’s sake, the tax tables list income in $50 chunks. The tables only go up to $99,950, so if your income is $100,000 or higher, you must use a separate worksheet to calculate your tax.

For example, if your taxable income (line 43 on your Form 1040) is $41,049, then using the tax tables you can easily find the tax you owe:

  • $6,050 if you file as single
  • $5,231 if you’re married filing jointly or as a qualifying widow or widower
  • $6,050 if you’re married filing separately
  • $5,496 if you’re filing as head of household

What Are Tax Brackets?

Tax tables show the total amount of tax you owe, but how does the IRS come up with the numbers on those tables? Perhaps the most important thing to know about the progressive tax system is that not all money is taxed at the same rate.

The first dollar you earn in a year is taxed at a lower rate than the last dollar you earn. If you make $95,000 in a year and your neighbor makes $60,000, you both start out paying the same rate, but you end with a higher rate. When you pass certain income thresholds, the percent of income you owe above that threshold increases.

For instance, if you are filing as single in the 2016 tax year, your adjusted gross income up to $9,275 is taxed at 10%. Then, every dollar between $9,276 and $37,650 is taxed at 15%. These groupings are called tax brackets. You don’t pay higher taxes just for having a higher projected salary – you pay higher taxes beginning on the day you start officially taking home the money in the next bracket.

Tax Brackets for Income Earned in 2015

Tax rateSingle filersMarried filing jointly or qualifying widow/widowerMarried filing separatelyHead of household
10%Up to $9,225Up to $18,450Up to $9,225Up to $13,150
15%$9,226 – $37,450$18,451 – $74,900$9,226 – $37,450$13,151 – $50,200
25%$37,451 – $90,750$74,901 – $151,200$37,451 – $75,600$50,201 – $129,600
28%$90,751 – $189,300$151,201 – $230,450$75,601 – $115,225$129,601 – $209,850
33%$189,301 – $411,500$230,451 – $411,500$115,226 – $205,750$209,851 – $411,500
35%$411,501 – $413,200$411,501 – $464,850$205,751 – $232,425$411,501 – $439,000
39.6%$413,201 or more$464,851 or more$232,426 or more$439,001 or more

Tax Brackets for Income Earned in 2016

Tax rateSingle filersMarried filing jointly or qualifying widow/widowerMarried filing separatelyHead of household
10%Up to $9,275Up to $18,550Up to $9,275Up to $13,250
15%$9,276 – $37,650$18,551 – $75,800$9,276 – $37,650$13,251 – $50,400
25%$37,651 – $91,150$75,301 – $151,900$37,651 – $75,950$50,401 – $130,150
28%$91,151 – $190,150$151,901 – $231,450$75,951 – $115,725$130,151 – $210,800
33%$190,151 – $413,350$231,451 – $413,350$115,726 – $206,675$210,801 – $413,350
35%$413,351 – $415,050$413,351 – $466,950$206,676 – $233,475$413,351 – $441,000
39.6%$415,051 or more$466,951 or more$233,476 or more$441,101 or more

Using these 2016 brackets, you can calculate the tax for a single person with a taxable income of $41,049:

  • The first $9,275 is taxed at 10% = $927.50
  • The next $28,374 is taxed at 15% = $4,256.10
  • The last $3,400 is taxed at 25% = $850.00

Each bracket has a maximum, so the last dollars you earn are the only ones that really require any math from you. In this example, the total tax comes to $6,033.60. Note that this is not the $6,050 that the tax tables told you you’d owe. The numbers don’t always add up perfectly. However, what’s in the tax tables is what the IRS legally determines you owe, and that trumps the figures arrived at from any detailed calculations you might do.

Marginal Tax Brackets

The highest tax bracket that applies to you is called your marginal tax bracket. It’s the one bracket that you cross into but don’t make it out of by the end of the year. Since you don’t hit the maximum in this bracket, this is the percentage you’re going to keep your eye on. It’s the rate at which you’re taxed for any additional income you bring in throughout the year.

If you get a raise, that extra money is taxed at your marginal rate (as long as the raise doesn’t sent you into a higher tax bracket). In other words, the more money you make, the less of it (as a percentage) you get to keep.

Tax Credits

Tax credits are very valuable savings tools. While deductions merely reduce the amount of income for which you’re taxed, tax credits reduce the actual amount of tax that you owe, dollar for dollar. For more information, learn more about the differences between a tax credit vs. a tax deduction.

You won’t start figuring out your tax credits until you know the total amount of taxes you owe. After you’ve deducted any taxes that you “pre-paid” by having them withheld from your paycheck (using tax form W-4) or by sending in estimated tax payments, you can start applying credits. Some credits, known as refundable credits, can reduce your tax liability to below zero, so you get money back from the government above and beyond your tax liability. On the other hand, non-refundable credits can only bring your taxes owed down to zero. Even if the total amount of your non-refundable credits is greater than the number you found on the tax table, you won’t receive any amount of non-refundable credits as a refund. The government never owes you money from non-refundable credits.

Final Word

Most people watch chunks of each paycheck disappear toward tax liability throughout the year with little understanding of how much they may owe when all is said and done. Then, before April of the following year, they wait for an accountant or tax prep program to announce a final total for a refund or taxes owed.

Thankfully, you can take the mystery out of your tax rate, without the complex mathematics that many people expect the IRS to use. Now that you know how to navigate the tax tables, you can get through the fog of figuring out your tax rate. You may find yourself making smarter decisions at the end of the year that can help make tax season a little easier, and ease the burden on your wallet when it comes time to settle up with the IRS.

Do you know your marginal tax bracket? Does it help you anticipate how much you owe in taxes each year?