Tax Bracket -vs TaxTable what am I missing?

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frogmaster
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Tax Bracket -vs TaxTable what am I missing?

Post by frogmaster »

Here is the 2013 Tax Brackets: http://www.bankrate.com/finance/taxes/tax-brackets.aspx
Here is the Tax Table from IRS: http://www.irs.gov/pub/irs-pdf/i1040tt.pdf

I am Married Filied Jointly and my 2013 PreTax income was 96,000-ish and turbo tax after adjustments had my Tabable income about 70,000-ish.
I think to myself GREAT that is in the 15% Tax Bracket as seen in above link. I finish turob tax and paid my share (Approx 15% per tax table).

So getting ready for next year and seeing my 2014 pay raise a few K more hmmmm getting close to that 25% Bracket at $72,501+

Looking at the Tax Table Linked above I DID NOT see the extra 10% Tax Kicker to make it 25%? It was like 15.1%.

What Basic fundamental assumtion or mistake am I missing here???

Thanks Froggy :)
Mr. Frog | :beer
Khanmots
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Re: Tax Bracket -vs TaxTable what am I missing?

Post by Khanmots »

Each dollar is taxed at it's own rate.

So for 2013,
Dollars numbered 1, 2, 3, ... 17,850 are taxed at the 10% rate
Dollars numbered 17,851, 17852, .... 72,499, 72,500 are taxed at the 15% rate
And only dollars numbered 72,501, 72,502, 72,503, etc are taxed at 25%

So if you had $72,500 of taxable income after all deductions...

$17,850 * 10% = $1,785
($72,500 - $17,850) * 15% = $8,197.5
nothing at the 25% rate so = $0
So... $1,785 + $8,197.5 = $9982.5

If you had earned $72,501 of taxable income after deductions...

$17,850 * 10% = $1,785
($72,500 - $17,850) * 15% = $54,650 * 15% = $8,197.5
($72,501 - $72,500) * 25% = $1 * 25% = $0.25
So... $1,785 + $8,197.5 + $0.25 = $9982.75
Last edited by Khanmots on Thu Mar 06, 2014 8:31 pm, edited 4 times in total.
derosa
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Re: Tax Bracket -vs TaxTable what am I missing?

Post by derosa »

For 2014 the break points are $18,150 for 10% and $73,800 for 15%.

And don't forget to add the calculations for each level together to get your total tax.
Alan S.
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Re: Tax Bracket -vs TaxTable what am I missing?

Post by Alan S. »

The tax table incorporates the tax rate brackets without having to calculate the taxes yourself. If you look at the MFJ column for your taxable income you might see a $15 increase for the next higher $100 increment, but once your taxable income exceeds the tax rate table indication the $15 with turn into $25 for the next $100.

The 2014 tax table will include an inflation adjustment that increases the top of the 15% bracket, so even if you spill over into the 25% bracket, it may not be by much. Note that the 25% rate only applies to the amount by which you spill over into that bracket, it does not affect the tax rates for your income below the top of the 15% bracket.
Topic Author
frogmaster
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Re: Tax Bracket -vs TaxTable what am I missing?

Post by frogmaster »

Thanks for all the replies so far, but it is obvious the answer do not match the Tax Table Linked.

Using the MFJ column I took 72,500 / 9,979 = 13.64% that is not 15% (yes I am thankful for that).
Using the MFJ column I took 72,501 / 9,989 = 13.77% that is NOT 25%!!!

I am still missing something here? :oops:

I was going to adjust my 401k extra contribution to keep my 2014 below the 15% to 25% Threshold, but not seeing it in the Tax Table Linked?

Yes will adjust for 2014 $73,800 AFTER I figure this Tax Table mismatch :sharebeer

Thanks in advanced :) Froggy
Mr. Frog | :beer
aorin
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Re: Tax Bracket -vs TaxTable what am I missing?

Post by aorin »

frogmaster wrote:Thanks for all the replies so far, but it is obvious the answer do not match the Tax Table Linked.

Using the MFJ column I took 72,500 / 9,979 = 13.64% that is not 15% (yes I am thankful for that).
Using the MFJ column I took 72,501 / 9,989 = 13.77% that is NOT 25%!!!

I am still missing something here?

I was going to adjust my 401k extra contribution to keep my 2014 below the 15% to 25% Threshold, but not seeing it in the Tax Table Linked?

Thanks in advanced :) Froggy
We have a progressive tax system. You are only taxed at 25% on the income exceeding $72,501.
For the first 17,850 you pay 10%
For 17,851 to 72,500 you pay 15%
and so on...

This is usually what people are misunderstanding when they say they don't want a raise because the taxes will be too high....
Topic Author
frogmaster
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Joined: Wed Jan 08, 2014 7:11 pm

Re: Tax Bracket -vs TaxTable what am I missing?

Post by frogmaster »

Khanmots wrote:Each dollar is taxed at it's own rate.

So for 2013,
Only dollars numbered 72,501, 72,502, 72,503, etc are taxed at 25%
Dollars numbered 17,851, 17852, .... 72,499, 72,500 are taxed at the 15% rate
Dollars numbered 1, 2, 3, ... 17,850 are taxed at the 10% rate
Hmmmm my light bulb is now flickering and make sense... but not seeing it 100% in my head (Anal Engineer here sorry folks) :shock:
Mr. Frog | :beer
Topic Author
frogmaster
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Joined: Wed Jan 08, 2014 7:11 pm

Re: Tax Bracket -vs TaxTable what am I missing?

Post by frogmaster »

aorin wrote:
frogmaster wrote:Thanks for all the replies so far, but it is obvious the answer do not match the Tax Table Linked.

Using the MFJ column I took 72,500 / 9,979 = 13.64% that is not 15% (yes I am thankful for that).
Using the MFJ column I took 72,501 / 9,989 = 13.77% that is NOT 25%!!!

I am still missing something here?

I was going to adjust my 401k extra contribution to keep my 2014 below the 15% to 25% Threshold, but not seeing it in the Tax Table Linked?

Thanks in advanced :) Froggy
We have a progressive tax system. You are only taxed at 25% on the income exceeding $72,501.
For the first 17,850 you pay 10%
For 17,851 to 72,500 you pay 15%
and so on...

This is usually what people are misunderstanding when they say they don't want a raise because the taxes will be too high....
Thanks Aorin the word progressive clears things up a bit :wink:
Mr. Frog | :beer
dbr
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Re: Tax Bracket -vs TaxTable what am I missing?

Post by dbr »

frogmaster wrote:
We have a progressive tax system. You are only taxed at 25% on the income exceeding $72,501.
For the first 17,850 you pay 10%
For 17,851 to 72,500 you pay 15%
and so on...

This is usually what people are misunderstanding when they say they don't want a raise because the taxes will be too high....
Thanks Aorin the word progressive clears things up a bit :wink:[/quote]

A bit off-topic, but I find it interesting when someone says that a word helps clear up a concept and another person might say that the concept allows him to understand what people mean when they use that word. For the OP it is the one, and for me, for example, the numbers in the quote above tell me what the word progressive means. A lot of conversations here and elsewhere can hinge on that difference in thinking style.
heyyou
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Re: Tax Bracket -vs TaxTable what am I missing?

Post by heyyou »

To cloud the water, you and your wife each get an exemption of 3950, so no tax on your first 7900. Then, no tax on 12,400 for the Married Filing Jointly deduction. The next 18,150 is at 10% so you now owe 1815, on 7900+12400+18150. The next 55650 is at 15%, that is 8347.50, so you owe 10,162.50 on 94,100 of income at the top of the 15% bracket, not to be confused with Adjusted Gross Income on the tax form that has subtracted the exemptions and deduction.

10162.50 divided by 94,100 is tax at an effective rate of 10.8%, and that is at the top of the 15% bracket. Each additional dollar of earnings beyond that point is taxed at 25% and up, but only those final dollars, not any of the prior 94,100 dollars.
Khanmots
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Re: Tax Bracket -vs TaxTable what am I missing?

Post by Khanmots »

frogmaster, I edited my earlier comment (the first reply) to include some example math, see if it helps.
tomd37
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Re: Tax Bracket -vs TaxTable what am I missing?

Post by tomd37 »

Reminds me of I sign posted in the Chief Engineer's office on board a Navy ship some 47 years ago"

"At first I could not spell In Jun Eer and now I are one!" :wink:
Tom D.
Topic Author
frogmaster
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Joined: Wed Jan 08, 2014 7:11 pm

Re: Tax Bracket -vs TaxTable what am I missing?

Post by frogmaster »

Khanmots wrote:frogmaster, I edited my earlier comment (the first reply) to include some example math, see if it helps.
Khanmots,

WOW that is it!!! Awesome! Now I see how they constructed the Tax Table :)

Thanks MUCH :mrgreen:
Mr. Frog | :beer
Khanmots
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Re: Tax Bracket -vs TaxTable what am I missing?

Post by Khanmots »

Hopefully it makes you feel better about the raise that bumped you into the 25% bracket... you're only paying 25% on a handful of dollars not all of them! :D
Sidney
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Re: Tax Bracket -vs TaxTable what am I missing?

Post by Sidney »

And some day you may find that you appear to be in the 25% bracket but your marginal tax rate is 30% -- which isn't even a bracket.
I always wanted to be a procrastinator.
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