Bay Area Tax Attorneys – Ever wonder what the term “tax bracket” means?
It refers to the top marginal tax rate that individuals are being taxed, not the average. Knowing your marginal rate is important, because any increase or decrease in your taxable income will affect your tax at your top marginal rate. Thus, if you are in the 25% marginal bracket and plan on signing up for your employer’s 401(k) plan, you will generally save $250 ($1,000 x .25) in federal taxes for each $1,000 contributed to the 401(k) plan. The reason we say “generally” is because sometimes a tax deduction can actually drop you into a lower marginal tax bracket.
The table below reflects the marginal tax bracket for various taxable incomes. Keep in mind that not all of your income is taxed. The amount equal to the sum of your deductions and exemptions is not taxed at all. If your income is below the sum of your deductions and exemptions, you would not have a taxable income, and your marginal rate would be zero.
However, once your income exceeds the sum of your deductions and exemptions, you will have taxable income and your marginal tax rate can be determined from the table. For example, let’s assume that your income for the year is $50,000. You are married with two dependent children and will take the standard deduction. The standard deduction in 2013 for a married couple $12,200 (up from $11,900 in 2012). The exemptions for 2013 are $3,900 (up from $3,800). Thus, your taxable income would be $22,200 ($50,000 – $12,200 –$3,900 x 4)). For a taxable income $22,200, the marginal tax rate from the table (table values illustrated are the top of each bracket) is 15%.
Increased Tax Rates: The 2013 Marginal Tax Rates Table below reflects the increased tax rates for higher income taxpayers as the result of the American Taxpayer Relief Act of 2012 (ATRA). ATRA added the 39.6% bracket.
2013 MARGINAL TAX RATES
TAXABLE INCOME BY FILING STATUS (Values shown are the top of each marginal tax bracket.) |
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Marginal
Tax Rate |
Single
|
Head of
Household |
Joint*
|
Married Filing
Separately |
10.0%
15.0% 25.0% 28.0% 33.0% 35.0% |
8,925
36,250 87,850 183,250 398,350 400,000 |
12,750
48,600 125,450 203,150 398,350 425,000 |
17,850
72,500 146,400 223,050 398,350 450,000 |
8,925
36,250 73,200 111,525 199,175 225,000 |
39.6%
|
Over the 35% amounts
|
2012 MARGINAL TAX RATES
TAXABLE INCOME BY FILING STATUS (Values shown are the top of each marginal tax bracket.) |
||||
Marginal
Tax Rate |
Single
|
Head of
Household |
Joint*
|
Married Filing
Separately |
10.0%
15.0% 25.0% 28.0% 33.0% |
8,700
35,350 85,650 178,650 388,350 |
12,400
47,350 122,300 198,050 388,350 |
17,400
70,700 142,700 217,450 388,350 |
8,700
35,350 71,350 108,725 194,175 |
35.0%
|
Over 388,350
|
Over 194,175
|