Tax Rates and Brackets
The United States’ tax system is progressive, which means that the greater your income the greater the tax that you pay on it. Many reasons exist for why your taxes are structured in this way. Essentially, the U.S. tax code is designed to recognize and address income inequality.
Currently, there are seven tax brackets in the U.S. These brackets are structured around your annual income for a given tax year. Please see the table below for an illustration of how these rates are set to work.
|Tax Rate %||Tax Bracket/Annual Income||Tax Owed|
|10||Up to $9,525||10 Percent of Taxable Income|
|12||$9,526 to $38,700||$952.50 plus 12% of the amount over $9,525|
|22||$38,701 to $82,500||$4,453.50 plus 22% of the amount over $38,700|
|24||$82,501 to $157,500||$14,089.50 plus 24% of the amount over $82,500|
|32||$157,501 to $200,000||$32,089.50 plus 32% of the amount over $157,500|
|35||$200,001 to $500,000||$45,689.50 plus 35% of the amount over $200,000|
|37||$500,001 or more||$150,689.50 plus 37% of the amount over $500,000|
There are four ways you can file, which represents your tax status:
- Married, filing jointly
- Married, filing separately
- Head of Household
Here’s an example of your tax obligation if you file as single:
- $9,524 at 10 percent=$952.40
- The next $29,175 at 12 percent=$3,501
- The final $11,301 at 22 percent=$2,486
Your taxes due at the end of the calendar year would be $6,939. If you apply the total taxable amount against annual income, your effective tax bracket is 13.9 percent.
The good news here is that you do not have to spend any time calculating your tax bracket because software programs handle that for you. For many people, an accountant is the individual who is asked to prepare tax return forms and those forms include all the calculations as well.
To the extent that you can invest in a tax-advantaged way, you should do so. Your best interests would be served by engaging with a financial advisor who will help you put together a short- or long-term investing plan. A wealth management plan will do its best to navigate your investments in a way that takes advantage of tax rules. By setting up a formal financial plan with an advisor, you are giving yourself the best possible hope, despite taxes, of having a successful outcome.