The federal income tax system dates to 1913 and the ratification of the Sixteenth Amendment to the U.S. Constitution. The tax system was designed as a "progressive" method of taxation, in which those with higher incomes pay taxes at a higher rate. As of 2012, there are six income tax brackets, with the rate of tax on net income ranging from 10 percent to 35 percent.
To calculate your tax bracket and your rate, you must first figure your net income. This is the total of all income you received during the year, whether from wages or other sources, minus deductions and exemptions allowed by the Internal Revenue Service. You can also deduct contributions to some retirement plans as well as moving expenses, mortgage interest, a portion of medical expenses and other costs, depending on the IRS guidelines.
Tax brackets and rates also vary with your filing status. Those who are single or married and filing separately typically pay higher tax rates than those who are married and filing jointly or as the head of household. The advantage for married couples in the lower rates is offset by the fact that two-earner households typically have higher net incomes that can move them into a higher tax bracket.
The IRS sets its lowest tax bracket at 10 percent for single and married filing separately taxpayers with net income up to $8,700 a year; for married filing jointly taxpayers with net income up to $17,400; and for heads of household with net income up to $12,400. The next lowest rate is 15 percent for singles and married (separate) with net income from $8,701 to $35,350 a year; for married (joint) from $17,401 to $70,700; and for heads of household from $12,401 to $47,350.
The middle tax brackets are set at 25 and 28 percent of net income. The former rate applies to single filers with net income between $35,351 and $85,650 a year; married (separate) from $35,351 to $71,350; married (joint) from $70,701 to $142,700; and head of household between $47,351 and $122,300.
The 28 percent bracket applies to single filers with net income between $85,651 and $178,650 a year; married (separate) between $71,351 and $108,725; married (joint) between $142,701 and $217,450; and head of household between $122,301 and $198,050.
The top rates for high-income filers are set at 33 and 35 percent. The 33 percent bracket applies to single filers with net income between $178,651 and $388,350 a year; married (separate) between $108,726 and 194,175; married (joint) between $217,451 and $388,350; and head of household between $198,051 and $388,350.
The 35 percent bracket applies to all income above the 33 percent thresholds. A single filer, for example, would pay 35 percent on all net income above $388,350. This is an example of a "marginal" tax rate, which applies only to that portion of your income greater than the threshold. You pay the lower rates on income below that threshold. The IRS provides tax tables in its Form 1040 booklet that do the math.
- Creatas/Creatas/Getty Images
- Can a Person Who Is Married Filing Separate File as a Head of Household for Federal Taxes?
- How to Calculate the Effective Mortgage Interest Rate After Deductions
- How to Calculate Spendable Income
- Is It Better to File Taxes as Married or Single?
- How Much of an Annual Salary Is Taxed?
- How to Create a Personal Monthly Budget
- What States Do Not Tax Equity Market Gains?
- Economics of Getting Married