Tuesday, February 9, 2016

Your Tax Bracket Tells Just Part of the Story

True or false: If you're in the 28% tax bracket, you pay 28% of your income to Uncle Sam.

The answer is false. You pay less than that, but many if not most taxpayers think otherwise.

We use the phrase "tax bracket" to express how much of your last taxed dollar is taxed. Your effective tax rate is less than your tax bracket percentage.

Here's how it works: The percentage of your income subject to tax rises as your income, from all sources, rises. The idea is central to what's called a progressive tax rate—those who earn more pay more in taxes. But the amount earners at any level pay is not a flat percentage. Instead there is a step-wise increase.

These tables help illustrate:

You can find the schedules for your own filing status at the IRS Web site.

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