Tax Rates

[JHZR2]

DO NOT MAKE THIS A POLITICAL OR GOVERNMENTAL DISCUSSION.

I was going through my latest pay stub, because I had worked some extra reimbursible hours and wanted to see the result. Im salaried so dont get extra bonus pay or time and a half or anything, but since I had these hours, wanted to see. I was surprised at the tiny amount of extra money I got considering what I was paid.

Which is prompting me to go back and re evaluate all my exemptions and filing statuses for my taxes. Its early in the new year, so it is probably a good time for everyone to do so.

A cursory search gave some info into how much total tax were roughly paying, if we do pay taxes. I found it interesting because we so often talk about federal tax, which is one percentage and a big one, but there are more to consider, which at least I personally dont think of (and Ihave a city wage tax to pay too, on top of these).

There are a few marginal tax rate calculators online that you can use, as well as the IRS tool. May be worth a shot looking at it, especially if your life has changed, as ours has. The percentages in the image are just an example of what is the rough payment point. LOTS of variables can make these numbers FAR different.

Probably a good time for all, especially if you got a big refund back last year and didnt make any adjustments, or are expecting a big refund this year... And of course, the life changes...

End of this public service announcement.

 

[SwampSurvivor]

I had to pay last year. Dropped my deductions and this year I have to pay more!

 

[ARCOgraphite]

I'm in NH with A 0% INCOME TAX state

(DoNT ASK ME HOW MUCH THE PROPERTY TAX RATE IS )
I might guess payroll tax means FICA witholdings. Isnt it erroneos to simply add fica to a mdeiaun rate as the formula is much more complex and possibly favourable to the earner.
If you gonna pay through the schnozzola, recall you've got till filing date (and possibly beyond) to add to your IRA and especially if your over 55 you may contribute even more ( higher limit).
If I see Im going to owe - I'll crank up some cash over into the FIDELITY ira. IIRC a husband and spouse over 50 can contribute over 11 grand in addition to your maxed out 401K . Better money going to my account offsetting tax than truely "out the window" to the Feds through the nasty IRS

 

[supton]

Ok, I had to play with this in Excel--I have a budget for next year, and I have it such that it should tell me what I ought to pay in taxes too. So I took my expected tax burden and called it y. I then bumped my income by 10% and got tax burden x. (x-y)/y showed a 33% increase in tax burden--if I had to pay $1k before now I would have to pay $1.333k.

Interesting. Problem is, this is bogus. I reran the numbers, but instead of doing percentages I did absolutes. I added $10k, staying in the same tax bracket; I "paid" $1385 more in taxes. If we want to squint our eyes, that $10k was taxed at $13.85%.

Am I missing something here, or do I understand this? I'm not sure I "get" this concept yet.

 

[IndyIan]

Are those true marginal rates, or the tax rate on everything over some number? Say $50-60k or is middle class defined as $125k each?
Seems very high compared to rates here?
I guess we have a few deductions due to kids, but I think our marginal tax rate averages 25% for our two incomes according to a calculator.
To hit a marginal rate of 45% we have to make $250k each...

 

[surfstar]

I didn't even google, just bing'd this one: http://www.consumerismcommentary.com/2014-federal-income-tax-brackets-and-marginal-rates/

Determining your effective tax rate.

The table above lists marginal tax rates. What might be more interesting to calculate is your effective tax rate. For example, if you’re single, you earn $100,000 in taxable income in 2014, your effective tax rate — how much tax you end up paying as a percentage of your income — will likely be much lower than the marginal tax rate of 28%. It could be half of that. After taking out the standard deduction for your income, which in 2014 will be $6,200, leaves you with $93,800 in taxable income, although there might be other deductions that apply to you.

With $93,800 in income after the standard deduction, you would owe 10% of $9,075, 15% of $27,825 (the total income covered in the second tax bracket), 25% of $52,450, and 28% of $4,450 (the fourth tax bracket up to your taxable income). That calculation results in $19,439 in federal income tax — an effective tax rate of 19.4% based on the total income of $100,000. That amount could be further reduced by any tax credits for which you might qualify. Your effective tax rate would be considered lower if you’ve had other reductions to your gross income, like 401(k) contributions. - See more at: http://www.consumerismcommentary.com/201...h.kFnE40eD.dpuf


I'm really not sure what you're getting at by posting marginal tax rates and the table happens to come from:
From Wikipedia, the free encyclopedia

Website
www.heritage.org

The Heritage Foundation is an American conservative think tank based in Washington, D.C.

 

[SatinSilver]

Perfect time to increase 401k contribution by 1% which won't be noticeable. Keep doing this for the next 5 yrs so your net increase will be an extra 5% contribution. It will be so gradual that it won't be noticed. I heard something similiar to this on the Clark Howard show. Who seems to be very sharp from what I've heard.

 

[Danh]

Originally Posted By: surfstar
I didn't even google, just bing'd this one: http://www.consumerismcommentary.com/2014-federal-income-tax-brackets-and-marginal-rates/

Determining your effective tax rate.

The table above lists marginal tax rates. What might be more interesting to calculate is your effective tax rate. For example, if you’re single, you earn $100,000 in taxable income in 2014, your effective tax rate — how much tax you end up paying as a percentage of your income — will likely be much lower than the marginal tax rate of 28%. It could be half of that. After taking out the standard deduction for your income, which in 2014 will be $6,200, leaves you with $93,800 in taxable income, although there might be other deductions that apply to you.

With $93,800 in income after the standard deduction, you would owe 10% of $9,075, 15% of $27,825 (the total income covered in the second tax bracket), 25% of $52,450, and 28% of $4,450 (the fourth tax bracket up to your taxable income). That calculation results in $19,439 in federal income tax — an effective tax rate of 19.4% based on the total income of $100,000. That amount could be further reduced by any tax credits for which you might qualify. Your effective tax rate would be considered lower if you’ve had other reductions to your gross income, like 401(k) contributions. - See more at: http://www.consumerismcommentary.com/201...h.kFnE40eD.dpuf


I'm really not sure what you're getting at by posting marginal tax rates and the table happens to come from:
From Wikipedia, the free encyclopedia

Website
www.heritage.org

The Heritage Foundation is an American conservative think tank based in Washington, D.C.


Yes, plus 1/2 the payroll tax amount is paid by the employer - it's not in your earnings and is not a deduction from wages.

 

[Coprolite]

+1 to Danh. The first table distorts the tax situation greatly, which is probably the intent. In order to get hit with an effective 28% federal tax bill, the taxpayer would be making a lot of money. FICA and Medicare don't all hit the employee and FICA is capped. If people are worried about marginal tax rates, that would be a good thing as that implies they will be making more money in 2014. If they haven't contributed the max to their 401(k) then they have a good excuse to bump it as noted above.

In any case, I don't relish paying taxes.


Originally Posted By: Danh
Originally Posted By: surfstar
I didn't even google, just bing'd this one: http://www.consumerismcommentary.com/2014-federal-income-tax-brackets-and-marginal-rates/

Determining your effective tax rate.

The table above lists marginal tax rates. What might be more interesting to calculate is your effective tax rate. For example, if you’re single, you earn $100,000 in taxable income in 2014, your effective tax rate — how much tax you end up paying as a percentage of your income — will likely be much lower than the marginal tax rate of 28%. It could be half of that. After taking out the standard deduction for your income, which in 2014 will be $6,200, leaves you with $93,800 in taxable income, although there might be other deductions that apply to you.

With $93,800 in income after the standard deduction, you would owe 10% of $9,075, 15% of $27,825 (the total income covered in the second tax bracket), 25% of $52,450, and 28% of $4,450 (the fourth tax bracket up to your taxable income). That calculation results in $19,439 in federal income tax — an effective tax rate of 19.4% based on the total income of $100,000. That amount could be further reduced by any tax credits for which you might qualify. Your effective tax rate would be considered lower if you’ve had other reductions to your gross income, like 401(k) contributions. - See more at: http://www.consumerismcommentary.com/201...h.kFnE40eD.dpuf


I'm really not sure what you're getting at by posting marginal tax rates and the table happens to come from:
From Wikipedia, the free encyclopedia

Website
www.heritage.org

The Heritage Foundation is an American conservative think tank based in Washington, D.C.


Yes, plus 1/2 the payroll tax amount is paid by the employer - it's not in your earnings and is not a deduction from wages.

 

[Quattro Pete]

Originally Posted By: surfstar

I'm really not sure what you're getting at by posting marginal tax rates

If I understood the OP's post correctly, he was trying to determine the tax rate that may be applied to some extra income that he would bring on top of his regular income. Chances are, his extra income would be subject to the marginal tax rate. He was not talking about effective tax rate.

 

[gathermewool]

I want as little back from Uncle Sam as possible. Ideally, i'd prefer to pay every year. To heck with giving out an interest-free loan...

 

[JHZR2]

Originally Posted By: surfstar
I'm really not sure what you're getting at by posting marginal tax rates and the table happens to come from:
From Wikipedia, the free encyclopedia

Website
www.heritage.org

The Heritage Foundation is an American conservative think tank based in Washington, D.C.


What Im getting at??? I mentioned it in the original post. I got some extra money, and only around 50% actually got into my pocket. I was a bit shocked because typically I attest gross vs what I get to the fact that I put a lot into my retirement savings, HSA, etc., then pay tax and everything else. Imagine my surprise when my extra money, which didnt contribute at all to retirement, HSA, etc. still came in at around 50%.

Thus why I looked at the numbers, found an example that explains why, and made the recommendation that everyone check just how much they are paying, especially if there is an ability to take some off the table in tax and not give a free loan to the government.

And as I said in the OP, DONT POLITICIZE this. The source of the chart is irrelevant, Ive found the data to be accurate myself, in fact we pay a bit more for various reasons.

 

[JHZR2]

Originally Posted By: Quattro Pete
Originally Posted By: surfstar

I'm really not sure what you're getting at by posting marginal tax rates

If I understood the OP's post correctly, he was trying to determine the tax rate that may be applied to some extra income that he would bring on top of his regular income. Chances are, his extra income would be subject to the marginal tax rate. He was not talking about effective tax rate.


Exactly. Thank you.

 

[Coprolite]

If you want to hear something outrageous, I transferred to a new position this year and now I technically work for a different tax company. Even though I hit the FICA cap, payroll continued to deduct it, as they said the limit reset with my change in company. While I know I can claw mine back with the return, the company threw away 6.2% of my salary on each paycheck as I don't believe they have an avenue to claim it back on a return.

Of course, this is a company that has known issues with minimizing taxes.

 

[JHZR2]

Originally Posted By: Coprolite
If you want to hear something outrageous, I transferred to a new position this year and now I technically work for a different tax company. Even though I hit the FICA cap, payroll continued to deduct it, as they said the limit reset with my change in company. While I know I can claw mine back with the return, the company threw away 6.2% of my salary on each paycheck as I don't believe they have an avenue to claim it back on a return.

Of course, this is a company that has known issues with minimizing taxes.


WOW! I should check this too! I think I hit the cap months back, but I dont recall the number going away...

FICA = SSI/medicare/etc, right?

 

[Coprolite]

To help out:

FICA (Social Security) rate for 2013 is 6.2% and caps at 113,700
2014 cap moves to 117k

Medicare is 1.45% no cap

Originally Posted By: JHZR2
Originally Posted By: Coprolite
If you want to hear something outrageous, I transferred to a new position this year and now I technically work for a different tax company. Even though I hit the FICA cap, payroll continued to deduct it, as they said the limit reset with my change in company. While I know I can claw mine back with the return, the company threw away 6.2% of my salary on each paycheck as I don't believe they have an avenue to claim it back on a return.

Of course, this is a company that has known issues with minimizing taxes.


WOW! I should check this too! I think I hit the cap months back, but I dont recall the number going away...

FICA = SSI/medicare/etc, right?

 

[Drew99GT]

Originally Posted By: Quattro Pete
Originally Posted By: surfstar

I'm really not sure what you're getting at by posting marginal tax rates

If I understood the OP's post correctly, he was trying to determine the tax rate that may be applied to some extra income that he would bring on top of his regular income. Chances are, his extra income would be subject to the marginal tax rate. He was not talking about effective tax rate.


Any extra income will be taxed at your top marginal rate, which may not be the 28% listed in the table. You have to look at the tax tables for the year you're considering to find out the brackets and marginal rates. All that table has is the 28% bracket which is essentially meaningless to anyone person's situation or the median taxpayer, since marginal rates are in no way a good measure of how much taxes people actually pay (because of brackets and deductions). The real measure is the EFFECTIVE tax rate which measures what you actually pay in taxes vs your total income.

 

[Drew99GT]

Originally Posted By: JHZR2
Originally Posted By: Coprolite
If you want to hear something outrageous, I transferred to a new position this year and now I technically work for a different tax company. Even though I hit the FICA cap, payroll continued to deduct it, as they said the limit reset with my change in company. While I know I can claw mine back with the return, the company threw away 6.2% of my salary on each paycheck as I don't believe they have an avenue to claim it back on a return.

Of course, this is a company that has known issues with minimizing taxes.


WOW! I should check this too! I think I hit the cap months back, but I dont recall the number going away...

FICA = SSI/medicare/etc, right?


yes, the FICA cap for 2013 is $113,700; your employer shouldn't be withholding FICA past that amount. It's easily refundable on your return though.

 

[zzyzzx]

Originally Posted By: gathermewool
I want as little back from Uncle Sam as possible. Ideally, i'd prefer to pay every year. To heck with giving out an interest-free loan...


It's not like your bank account is paying interest. I'd rather give an interest free loan than pay interest and penalties.

 

[Drew99GT]

Another misleading part of that table; half the payroll tax is paid by the employer.