JSU*Toi
New Member
In the other thread there was some confusion about which tax bracket folks were in and how to find that information. To help my fellow TSPN'ers I started a thread all about taxes...
The Federal income tax is referred to as a “progressive tax.” Of course, it’s not progressive in the same way that a social movement could be said to be progressive. What the term means in this case is that, as your taxable income increases, so does the rate at which you are taxed.
People will often make statements such as “I’m in the 25% tax bracket.” For example, a single person with a taxable income of $40,000 would be in the 25% tax bracket. People frequently misunderstand this to mean that all of the person’s income is taxed at a rate of 25%. In reality, the person’s overall tax rate will be much lower.
EXAMPLE: Samantha’s 2009 taxable income is $40,000. This puts her in the 25% tax bracket. If that meant that all of her income was taxed at 25%, she would be paying $10,000 in income taxes. Instead, she’ll be paying much less. Samantha will actually end up paying $6,187.50 calculated as follows:
1) Her first $8,350 of taxable income is taxed at 10%. ($835 in tax)
2) From $8,350 to $33,950 she’s taxed at 15%. ($3,840 in tax)
3) From $33,950 to $40,000 Sam is taxed at 25%. ($1,512.50 in tax)
4) $835 + $3,840 + $1,512.50 = $6,187.50
The Federal income tax is referred to as a “progressive tax.” Of course, it’s not progressive in the same way that a social movement could be said to be progressive. What the term means in this case is that, as your taxable income increases, so does the rate at which you are taxed.
People will often make statements such as “I’m in the 25% tax bracket.” For example, a single person with a taxable income of $40,000 would be in the 25% tax bracket. People frequently misunderstand this to mean that all of the person’s income is taxed at a rate of 25%. In reality, the person’s overall tax rate will be much lower.
EXAMPLE: Samantha’s 2009 taxable income is $40,000. This puts her in the 25% tax bracket. If that meant that all of her income was taxed at 25%, she would be paying $10,000 in income taxes. Instead, she’ll be paying much less. Samantha will actually end up paying $6,187.50 calculated as follows:
1) Her first $8,350 of taxable income is taxed at 10%. ($835 in tax)
2) From $8,350 to $33,950 she’s taxed at 15%. ($3,840 in tax)
3) From $33,950 to $40,000 Sam is taxed at 25%. ($1,512.50 in tax)
4) $835 + $3,840 + $1,512.50 = $6,187.50
