Is this True?

Question

Many people think that if an increase in earnings moves their salary to a higher tax bracket, their entire salary will be taxed at the higher rate. Is this true? Give an example to justify your answer.

Answer 1

No, it is not true. Only the increased income will taxed at a higher amount. The tax tables are tricky because they are presented in such a way that many people misinterpret them. You can verify my example if you go to www.irs.gov and pull up the tax rate tables for the 1040 form. Go clear to the bottom of the rate table until you find the tables that give the actual percentages on taxes by category. There are six categories.

I will give an example for a single tax payer using the 2005 schedule X. If the taxable income was $7300 the tax would be 10% or $730. If the taxable income was $14,000 the tax would be 730 plus 15% of the income over 7300. In other words the tax payer continues to pay 10% on the income up to $7300.

So, take 14,000 and subtract 7300 and get 6700. Take 6700 times 15% and get 1005. The total tax owed is $730 plus $1005 or $1735. To find the actual percent of tax paid divide 1735 by 14,000 and 12%. So you can see, not all of the income is taxed at 15%.

If you will study tax schedules X, Y-1, Y-2, and Z, all of this should come clear to you. Hope this helps.

Answer 2

Taxes increase in proportion to earnings, as do places to hide said earnings.

Answer 3

well.. maybe in theory,, but if you look at those tables you find that there are a lot of 'loopholes' 'exemptions' that the people in higher tax brackets get that people in lower tax brackets don't get. look up 'loopholes' and 'exemptions' . the people in higher brackets want the ones in lower brackets to think they are carrying their load in supporting our government.. also.. look up 'tax shelters'

Answer 4

Yes. Look at IRS tables.

Answer 5

Yes
Go to irs.gov

Answer 6

ummm do ur own hw...