Understanding the Current Tax Brackets

By Hj Jung , last updated January 3, 2012
Understanding the current tax brackets would require you to understand the system of tax brackets in general, but it’s easy once you get a good sense of the whole picture. Tax brackets exist in order for the government to apply taxes to fixed categories of income amounts. Depending on the amount you make or which category of income number you fall under, your tax bracket will vary. Tax brackets also exist in order to make progressive taxing possible, and to avoid a single percentage of taxation on citizens regardless of what their income may be. Understanding the current tax brackets is essential to your knowledge of your overall income and money flow. The following is a review on how to understand the current tax brackets.

Tax Brackets for 2012

The projected Federal income tax brackets for 2012 are the following for single households: for those who make $0 to $8,700 a year will fall under the 10% bracket; for those who make $8,700 to $35,350 a year will fall under the 15% bracket; for those whose income is anywhere between $35,350 to $85,650, the tax bracket will be 25%; for single households that make anywhere between $85,650 to $178,650, the tax bracket they will fall under is 28%; for single households with an income of $178,650 to $388,350, the tax bracket they will fall under is 33%; for any single households that make over $388,350, the tax bracket will always be 35%.

For married households that file jointly, the tax brackets for 2012 is slightly different: for married households that file jointly and make a yearly income of $0 to $17,400, the tax bracket is 10%; for married households that file jointly and make a yearly income of $17,400 to $70,700, the tax bracket they fall under is 15%; for couples who make $70,700 to $142,700 a year, the tax bracket they fall under is 25%; for couples who file jointly and make a yearly income of $142,700 to $217,450, the tax bracket they fall under is 28%; for married couples whose income is anywhere between $217,450 to $388,350, the tax bracket for them is 33%; for married couples who file jointly and make a yearly income of over $388,350, the tax bracket for them is 35%.

Some pointers that Forbes Magazine makes include the following: filing for taxes as a married couple, jointly, will raise the deduction to $11,900. For singles, the deduction will rise to $5,950. For those who file with a dependent exemption, the tax deduction will rise to $3,800.

Inflation

The 2011 income tax brackets were more or less just like the 2010 tax brackets. The 2011 inflation percentage averages to 2.45 percent, and the year before that it was 1.48 percent. The purpose of these tax bracket adjustments is directly related to the inflation that the country has been experiencing. Reason being, the adjustment to the cost of living is the same in percentage to the Consumer Price Index (CPI) that exceeds the CPI from the calendar year 1992. This is simply a regulation that is a part of the internal revenue code. So in order to calculate the tax bracket of any given year, simply take the tax brackets from the calendar year 1992 and adjust the rates you find on the Jobs and Growth Tax Relief Reconciliation Act of 2003 passed during the Bush Administration, otherwise known as a Bush Tax Cut.

Taxable Income and Brackets

If, for instance, you suddenly end up in a higher tax bracket because your income suddenly rises by a few thousand dollars. This does not mean that you will suddenly be taxed a full 15% of your income. It simply means that you’ll be taxed of the final dollar you make. So if for some reason you get a raise at work, don’t be concerned about the tax bracket you’ll be falling under. It’s quite possible that the raise might interfere with you receiving the benefit of certain deductions or credits, but that doesn’t mean that you’ll be taking home any less than what you usually were. If you make an estimate of your income tax by applying the marginal tax bracket without taking into account other facts that might come into play, you’ll end up with inaccurate and alarming results.

Also, be aware that the Federal income tax is different from taxable income and tax brackets. With every paycheck you receive from work, there are withholdings, otherwise known as Federal income taxes. The Federal income tax includes Social Security tax, Medicare tax and the State income tax. This income tax that the government applies to every paycheck is calculated differently from the overall taxable income because there are factors to consider that may not be known at the time of taxation like what deductions you’ll be claiming and what your household partner earns each year.

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