Do the IRS tax your personal income by dollar per dollar, meaning for every dollar, they tax 17% out of the whole, or is it based on a certain income bracket?
For example, if I make 1,500 per month, I will be tax 17%; but if I make 1,501, I will be tax 18%?
Or is it a flat tax where if I belong in a certain income bracket, I will only need to pay the same amount of tax as other in the same bracket. Such as a person, earning 1,500 will pay $200 taxes and I earning $2,000 will also pay $200? The cap on the bracket is $2,500 and if you make $2,501 you will be tax $300
Really confuse here. I might be going about this all wrong. Please help me to understand the average person income tax?
2006-09-23 07:10:19 · 4 answers · asked by Inquisit 2 in Business & Finance ➔ Taxes ➔ United States
I see where you're getting confused. Don't feel badly-most everyone is confused about the US tax code! Anyway, the other poster was correct when he/she said that we're on a "graduated tax system". To further clarify, here's how it works: let's say you earned $8,000, you're single and have no dependents. The first $7,550 would be taxed at 10%, and the remaining $450 ($8,000 minus $7,550) would be taxed at 15%. Therefore, even though you would be considered to be in the 15% tax bracket, you're only paying $822.50 in tax (822.50/8,000 = 10.28% tax). The 10.28% is considered your effective tax rate, and 15% is considered your marginal tax rate (referring to the IRS tax tables). So, it's not like you're paying 15% on your entire $8,000-only the amount that exceeds $7,550.
I hope that didn't confuse you more!
2006-09-23 07:55:43 · answer #1 · answered by SuzeY 5 · 5⤊ 0⤋
Your taxable income is divided into brackets. On the lowest dollars, you pay the bottom rate, then move up the line for your higher dollars.
If, for example, your income is $1 into the 25% bracket, you'd only pay the 25% on that dollar - on everything else, you'd pay the same lower rate(s) as someone who made $1 less than you, so was in the lower bracket. You wouldn't pay 25% on everything.
When people refer to being in a particular bracket, they're talking about the percent their highest dollar gets taxed on.
2006-09-23 08:19:44 · answer #2 · answered by Judy 7 · 0⤊ 0⤋
SuzeY's answer is very good. One thing she left out is: tax rates apply to taxable income. That is income after deductions and personal exemptions. In some cases their are also credits. These are amounts subtracted from the tax due after applying the tax rate to the taxable income.
2006-09-23 09:43:37 · answer #3 · answered by STEVEN F 7 · 1⤊ 0⤋
There are different tax rates according to your income (after all deductions and adjustments are calculated.) This is called "graduated tax rates." Many people believe there should be a flat rate, but I don't think it's likely that Congress will ever approve that.
2006-09-23 07:20:59 · answer #4 · answered by banjuja58 4 · 0⤊ 0⤋