The American federal income tax system is graduated, meaning those with higher taxable incomes pay a higher tax rate than lower-income individuals. To determine your tax bracket, you'll have to know what your income is, as reflected on your Form 1040, as well as your filing status. Both tax rates and the brackets used to define them are subject to change from year to year.
Tax brackets vary depending on your filing status. If you're married, your filing status options are married filing jointly and married filing separately. In most situations, married filing jointly offers you the best tax outcome, but the details of your financial situation may vary. The two other filing status categories are single and head of household.
Your tax bracket is based on your taxable income, which can be very different from the total amount of money you earn. The IRS permits various deductions, exemptions and credits that can lower the amount of your taxable income. For example, as of 2012 all married taxpayers filing joint returns are allowed a standard deduction of $11,900, meaning $11,900 of your income isn't taxed at all. Additionally, all taxpayers receive a personal exemption of $3,700, or $7,400 for a married couple with no children, further reducing the amount of taxable income. On Form 1040, there are 21 lines of possible deductions between your total income and your taxable income.
Your marginal tax bracket is the tax rate you pay on the last dollar of income you earn. As of 2012, there are six distinct marginal tax brackets, with rates ranging from 10 percent to 35 percent. If you are married filing jointly, you pay 10 percent of your taxable income up to $17,400, 15 percent from $17,401 to $70,700 and 25 percent from $70,701 to $142,700. The 28 percent bracket runs from $142,700 to $217,450, with the 33 percent bracket covering taxable incomes from $217,451 to $388,350. With a taxable income of $338,350 or higher, you're in the 35 percent bracket.
While federal income taxes are likely the bulk of your tax burden, in all but nine states you'll have to face state income taxes as well. You can calculate your state tax bracket the same way as your federal bracket, by using a combination of your taxable income and your filing status. Top tax brackets in states can approach or even exceed 10 percent, as in the case of Hawaii and California.
After receiving a Bachelor of Arts in English from UCLA, John Csiszar earned a Certified Financial Planner designation and served 18 years as an investment adviser. Csiszar has served as a technical writer for various financial firms and has extensive experience writing for online publications.