Taxes are complicated. However, the least complicated thing about taxes are the tax brackets. If your income is between certain numbers, then you pay whatever rate is associated with that range. Taxes become complicated when you figure in all of the credits and deductions that you can take. That is where a tax professional comes in—Kenneth M. Perkins CPA/PFS can help you when taxes get overwhelming. The first step is understanding your tax bracket, and therefore your tax rate.
Each tax rate varies depending on your filing status. There are generally five different filing statuses that you can use. Each one depends on your particular lifestyle. If you’re not married and have no dependents, then you almost always file as single. In some circumstances, however, those that fit this description can also file as a qualifying widow or widower.
Married individuals have two filing status as well. They can either file with their spouse as married filing jointly or they can file as married filing separately. There are many tax advantages to filing married filing jointly, but there are some circumstances when married filing separately is more appropriate. For example, if you and your spouse are separated but not yet divorced, then married filing separately could be a good option. It may also be appropriate if your spouse (or you) owe money to an entity that will take your tax return, such as for back child support or other debts.
If you are considered married as of December 31 of the previous year, then you are considered married for tax purposes. As a married filer, you get higher standard deductions, two exemptions, and higher allowances for many itemize deductions. Talk to your tax professional to determine which filing status is right for you.
Single filers also have one more filing status option. It is only available if they have dependent children. This status is called the Head of hHousehold. This status has lower tax rates than filing single because the IRS understands that caring for dependent children as a single person can be very financially burdensome.
The tax brackets change from year-to-year, which means your tax rate may also fluctuate. The United States has a progressive tax system. That means that larger income earners will be taxed at a higher rate. The rationale behind the system is that higher earners can afford to pay higher taxes, and they do not need this extra money to pay for necessities like food, shelter, and clothing.
You can find the tax brackets for 2016 below. These numbers will be used in 2017, when you file your 2016 taxes.
2016 tax brackets (for taxes due April 17, 2017) | ||||
Tax rate | Single | Married Filing Jointly or Qualifying Widow/Widower | Married filing separately | Head of Household |
| 10% | Up to $9,275 | Up to $18,550 | Up to $9,275 | Up to $13,250 |
| 15% | $9,276 to $37,650 | $18,551 to $75,300 | $9,276 to $37,650 | $13,251 to $50,400 |
| 25% | $37,651 to $91,150 | $75,301 to $151,900 | $37,651 to $75,950 | $50,401 to $130,150 |
| 28% | $91,151 to $190,150 | $151,901 to $231,450 | $75,951 to $115,725 | $130,151 to $210,800 |
| 33% | $190,151 to $413,350 | $231,451 to $413,350 | $115,726 to $206,675 | $210,801 to $413,350 |
| 35% | $413,351 to $415,050 | $413,351 to $466,950 | $206,676 to $233,475 | $413,351 to $441,000 |
| 39.6% | $415,051 or more | $466,951 or more | $233,476 or more | $441,001 or more |
As you can see, very high income earners will be taxed at nearly 40%. This means that for every dollar they earn, the government takes 40¢.
In addition to the Federal income tax, states usually also charge income tax. However, not all states have income tax. Florida, for example, does not have income tax. State income taxes are usually much lower than the Federal rates, but this is not always the case. In Virginia, the top tax rate is 5.75%. It applies to those who earn over $17,001. That means that if you are an average income earner in Virginia, you may have a flat rate state tax.
Other taxes that you may have to pay include:
Each local area is slightly different, so what you pay may not be the same as someone else who lives in a different geographical location but earns the same as you do. It can be difficult to know what your tax obligations may be, especially if you have just moved to a new place. Kenneth M. Perkins, a tax professional, can help you navigate the complicated waters of tax rates and tax brackets. Use the contact button below to give Kenneth call, or click the profile link to find out more. We look forward to hearing from you!
Kenneth M Perkins CPA/PFS