Calculating Your Income Tax
Your income tax bill and your income tax rate are based on your taxable income. The tax system in the United States is progressive, meaning that the tax rates are marginal so the higher your taxable income the higher the tax rate you will pay.
Taxable income is broken into brackets, or ranges of income. Each bracket has a different tax rate. Your tax rate is also determined by your filing status. The IRS offers these five tax filing statuses:
- Single (If on the last day of the year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree and you do not qualify for another filing status.)
- Married filing jointly (You are married and both you and your spouse agree to file a joint return. On a joint return, you report your combined income and deduct your combined allowable expenses.)
- Married filing separately (You are married and you and your partner are filing separately. This method may benefit you if you want to be responsible only for your own tax or if this method results in less tax than a joint return.)
- Head of household (You are unmarried and you paid more than half the costs of supporting a child or a parent.)
- Qualifying surviving spouse (Available to certain individuals who have experienced the loss of their spouse.)
key terms for calculating your income tax
- Progressive Tax System: The U.S. uses a progressive tax system where higher income leads to higher tax rates.
- Tax Brackets: Taxable income is categorized into brackets, or ranges of income, each with its own tax rate.
- Filing Status: Your tax rate is affected by your filing status, with five options offered by the IRS.
Below are the 2023 marginal tax rates for individuals filing with statuses single, married filing jointly, and head of household.
| Tax Rate | For Single Filers | For Married Individuals Filing Joint Returns | For Heads of Households |
|---|---|---|---|
| [latex]10\%[/latex] | [latex]$0\text{ to } $11,000[/latex] | [latex]$0\text{ to } $22,000[/latex] | [latex]$0\text{ to } $15,700[/latex] |
| [latex]12\%[/latex] | [latex]$11,000 \text{ to }$44,725[/latex] | [latex]$22,000 \text{ to }$89,450[/latex] | [latex]$15,700 \text{ to }$59,850[/latex] |
| [latex]22\%[/latex] | [latex]$44,725 \text{ to }$95,375[/latex] | [latex]$89,450 \text{ to }$190,750[/latex] | [latex]$59,850 \text{ to }$95,350[/latex] |
| [latex]24\%[/latex] | [latex]$95,375 \text{ to }$182,100[/latex] | [latex]$190,750 \text{ to }$364,200[/latex] | [latex]$95,350 \text{ to }$182,100[/latex] |
| [latex]32\%[/latex] | [latex]$182,100 \text{ to }$231,250[/latex] | [latex]$364,200 \text{ to }$462,500[/latex] | [latex]$182,100 \text{ to }$231,250[/latex] |
| [latex]35\%[/latex] | [latex]$231,250 \text{ to }$578,125[/latex] | [latex]$462,500 \text{ to }$693,750[/latex] | [latex]$231,250 \text{ to }$578,100[/latex] |
| [latex]37\%[/latex] | [latex]$578,125[/latex] or more | [latex]$693,750[/latex] or more | [latex]$578,100[/latex] or more |
So if your taxable income is [latex]$76,500[/latex] and you are filing as a single filer, your tax bill will be [latex]22\%[/latex] of that [latex]$76,500[/latex], right? Wrong. Your income is split among those brackets and the money in each bracket is taxed at that bracket’s tax rate. This makes calculating the amount you owe on taxes very confusing.
How to: Find the Tax amount Owed:
- Determine your taxable income.
- Identify the applicable tax brackets.
- For each tax bracket, determine the portion of your taxable income that falls within that bracket. Multiply that portion by the corresponding tax rate.
- Add up the tax amounts calculated for each bracket to find your total tax liability.