Do you want to know how much money you will be paying in taxes this year? You need to understand tax brackets. Tax brackets are the ranges of income that are taxed at different rates. The higher your income, the higher your tax rate will be. In this blog post, we will discuss how tax brackets work and who pays what!
There are seven tax brackets in the United States: ten percent, fifteen percent, twenty-five percent, thirty-three percent, thirty-seven percent, and forty-seven percent. The first six brackets apply to taxable income (TI). TI is your total income minus any deductions or exemptions. The seventh bracket applies to long-term capital gains and qualified dividends.
Income in the United States is taxed at progressive rates. That means that as your income increases, so does your tax rate. The tax rate for each bracket is applied to the income that falls within that bracket. For example, if you have a taxable income of $50,000, your tax rate would be fifteen percent on the first $37,950 of income, twenty-five percent on the next $12,050 of income, and thirty-seven percent on the remaining $50 of income.
The marginal tax rate is the tax rate you pay on your last dollar of income. In our example above, the marginal tax rate would be thirty-seven percent. The effective tax rate is the average tax rate you pay on all of your income. In our example above, the effective tax rate would be twenty percent.
So, who pays what in taxes? The answer may surprise you! According to the Tax Policy Center, the top one percent of earners (those making over $628,000 per year) pay thirty-seven percent of all federal taxes. The top five percent of earners (those making over $151,000 per year) pay fifty-nine percent of all federal taxes. The bottom ninety-five percent of earners (those making less than $151,000 per year) pay forty-one percent of all federal taxes.
As you can see, the majority of Americans do not shoulder the entire burden of paying taxes. The top earners in our country pay the majority of federal taxes. So, next time you hear someone say that the rich don’t pay their fair share in taxes, you can tell them that they are wrong!
What are the tax brackets married filing jointly?
The tax brackets for married filing jointly are the same as the tax brackets for single filers, except that the income thresholds are doubled. For example, the 15% tax bracket for married couples begins at $19,050, while it begins at $12,700 for single taxpayers. The highest marginal rate of 39.60% applies to taxable incomes over $470,700 for married couples, compared to $418,400 for singles. (These numbers are based on Tax Year 2016.)
