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Thread: Tax bracket question

  1. #1

    Default Tax bracket question

    How do the tax brackets work?

    I assumed if you make it in a next bracket, so say you land in the $73,801 – $148,850 range, all of your income is 25% taxed.

    My boss says he thinks if you are the in bracket, so say $73,801 – $148,850, then all of your income under $73,801 is at the 15% and only the money between $73,801 and $148,850 is at the 25% rate? Is this correct?

    Thanks.

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    Quote Originally Posted by Rick View Post
    How do the tax brackets work?

    I assumed if you make it in a next bracket, so say you land in the $73,801 – $148,850 range, all of your income is 25% taxed.

    My boss says he thinks if you are the in bracket, so say $73,801 – $148,850, then all of your income under $73,801 is at the 15% and only the money between $73,801 and $148,850 is at the 25% rate? Is this correct?

    Thanks.
    Your boss is right, you are wrong with the exception that there would be some (something like $20,000 if married) is in the 10% bracket. Also, if you have any capital gains or qualified dividends, they wouldn't be charged at those brackets.

    So, say you made 125,000 (married). Your taxes would be roughly.

    20,000 x 10% = $2,000
    53,000 x 15% = $7,950
    52,000 x 25% = $13,000

    For a total of roughly $22,950 in taxes. If you take the $22,950 in taxes and divide it by your total income, then that's about 18% of your income, which they call the effective tax rate.

    You can see how in that scenario, you would pay more on the last 52,000 than you would have paid on first $73,000 of income.

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  6. #5

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    Thanks guys, makes me breathe easier. I was assuming a big loss of income coming since family had just crossed the threshold.

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    Quote Originally Posted by Rick View Post
    Thanks guys, makes me breathe easier. I was assuming a big loss of income coming since family had just crossed the threshold.
    No, I think the only way that might happen (and I'm not clear on it, as it doesn't apply to me) is the new taxes that have been added to greater than $250k (I think). There are ACA taxes (extra Fica or something) and I think once you hit a certain point, capital gains taxes go up. So, it might be possible (not sure) that in certain circumstances when you hit these higher thresholds and the recent rich taxes kick in, that you could actually make less net after crossing a threshold, but like I said, I'm not real clear on all of that.

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