Politicians, financial experts, economists and everyday workers all talk about it – the tax bracket. A tax bracket includes a rate that is used to calculate the tax on your income, but this information can be a bit misleading. The bracket assigned to your income is not the rate that’s applied to all your earnings. Some of your income will be taxed at lower rates, too. To satisfy your inquiring mind, the IRS publishes tax rate schedules to give you a general idea of your tax bracket.
Convert your salary to an annual figure. In most cases, your gross salary should be the same every pay period. Subtract any pre-tax deductions from your gross salary, such as health insurance premiums or 401(k) contributions you elect your employer to withhold. The result is your net taxable income. Multiply this amount by the number of paychecks you receive during the year. The result is your annual taxable salary.
Calculate your monthly commission. This step may be a tricky, because you’ll have to average your commission payments. Gather your commission payment information from several recent months and add the figures together. Divide the result by the number of months in your calculation to determine your average monthly commission. Multiply the result by 12. This is your average annual commission.
Combine your annual salary and annual commission amounts. The result is your estimated adjusted gross income.
Determine your filing status for the tax year. This is the status you’ll claim on your tax return, which might not be the same status you claim for the tax withheld from your pay.
Look at the deduction rate for your filing status. Go to the irs.gov website and download the current Form 1040. Filing status deductions are shown in the left margin of page 2. These amounts may change on the next Form 1040, but you’ll have a good idea of what to expect.
Look at the personal exemption rate on page 2 of the Form 1040. This rate is shown near the filing status deductions. Multiply the rate by the number of people you’ll claim on the tax return. You and a spouse are each allowed one exemption. If you’re eligible to claim any dependents, you’ll also receive personal exemption for each dependent.
Subtract your filing status and personal exemption amounts from your adjusted gross income. The result is your taxable income.
Look up the current tax table rates on the irs.gov website. Type “Tax Rates” in the website search field to quickly access the table.
Scroll down to the “Tax Rate Schedules.” These show you the actual tax rate percentage that applies to your income. Locate the schedule for your filing status and find your income range. The percentage is shown is your tax bracket rate. Depending on your income, you may have more than one tax rate assigned. A portion of your income is taxed at the rate below your income range, and the rest is taxed in the regular bracket for your income.
- If you're married and file a joint return, include your spouse's salary in your calculations. This will give you a better idea of the tax bracket that applies to your household earnings, which is the bracket that will be used when you file your return.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.