Understanding Federal Income Tax Brackets

Federal income tax brackets prescribe the amount of an individual’s tax liability based on their income. Established by the Internal Revenue Service (IRS), brackets are in the form of percentages ranging from 10-35. The U.S. tax system is a progressive one; the more a taxpayer earns in a given year, the more tax liability they incur.

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Federal Income Tax Brackets 2015 – 2016  Explained

A bracket is the tax percentage an individual pays on their income. There are six levels: 10, 15, 25, 28, 33 and 35.

Each bracket applies to a different income level. Income levels for tax bracket purposes change depending on whether the taxpayer files as a single person, jointly with their spouse or as the head of household. “Single” includes married taxpayers filing separately.

Brackets are published each year. The 2012 rates are available online and are updated per year as they become available. They typically change each year, by approximately $500, to account for inflation. It is important to check the IRS website and any filing documents every year prior to filing a return, or you could end up paying too much or too little in taxes.

What a Bracket Means

A bracket does not identify the percentage of a taxpayer’s income they will pay to the IRS. Rather, it identifies the tax liability for each dollar over the bracket maximum that the taxpayer owes to the IRS. This liability is in addition to the 10% that the IRS charges on the first $8,700 of every taxpayer’s income.

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IRS Form 1040ez

Example

A single taxpayer earning $30,000 a year does not pay 15 percent of their income ($4,500), but rather 15% of every dollar over $8,700, meaning $21,300, to the IRS. In this example, the taxpayer’s liability on the $21,300 that their income exceeds the first bracket is $3,195, according to the IRS. This would be in addition to the $870 liability for the first $8,700 of their income, charged at a 10 percent tax rate, resulting in a total of $4,065 in tax liability.

Determining Your Bracket

To determine what bracket applies to you, you must first calculate your total income earned in a year. As defined by the IRS, “income” includes all wages and salaries, sick and vacation day payments, bonuses, royalties, interest and commissions. IRS publication 525, titled “Taxable and Nontaxable Income,” lists the specifics of what the agency considers income. Essentially, your income is determined by adding together all earnings.

Second, you must identify the tax bracket that completely includes all of your income; this is your tax bracket. Although the entire IRS Tax Computation Worksheet helps you determine your tax bracket, page 14 provides the applicable tax rates for income and specifies the amount of your income to which the tax bracket applies.

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Your Tax Liability

Federal income tax brackets and their accompanying calculations can be confusing; carefully check your work on your tax form when determining the amount of money you owe to ensure that you are not overpaying. Additionally, remember that you can reduce your liability by claiming tax credits.

2015 – 2016 Federal Tax Rates and Brackets

Single:

Taxable Income Tax Rate
$0 to $9,225 10%
$9,226 to $37,450 $922.50 plus 15% of the amount over $9,225
$37,451 to $90,750 $5,156.25 plus 25% of the amount over $37,450
$90,751 to $189,300 $18,481.25 plus 28% of the amount over $90,750
$189,301 to $411,500 $46,075.25 plus 33% of the amount over $189,300
$411,501 to $413,200 $119,401.25 plus 35% of the amount over $411,500
$413,201 or more $119,996.25 plus 39.6% of the amount over $413,200

 

Married Filing Jointly or Qualifying Widow(er):

Taxable Income Tax Rate
$0 to $18,450 10%
$18,451 to $74,900 $1,845.00 plus 15% of the amount over $18,450
$74,901 to $151,200 $10,312.50 plus 25% of the amount over $74,900
$151,201 to $230,450 $29,387.50 plus 28% of the amount over $151,200
$230,451 to $411,500 $51,577.50 plus 33% of the amount over $230,450
$411,501 to $464,850 $111,324.00 plus 35% of the amount over $411,500
$464,851 or more $129,996.50 plus 39.6% of the amount over $464,850

 

Married Filing Separately:

Taxable Income Tax Rate
$0 to $9,225 10%
$9,226 to $37,450 $922.50 plus 15% of the amount over $9,225
$37,451 to $75,600 $5,156.25 plus 25% of the amount over $37,450
$75,601 to $115,225 $14,693.75 plus 28% of the amount over $75,600
$115,226 to $205,750 $25,788.75 plus 33% of the amount over $115,225
$205,751 to $232,425 $55,662.00 plus 35% of the amount over $205,750
$232,426 or more $64,998.25 plus 39.6% of the amount over $232,425

 

Head of Household:

Taxable Income Tax Rate
$0 to $13,150 10%
$13,151 to $50,200 $1,315.00 plus 15% of the amount over $13,150
$50,201 to $129,600 $6,872.50 plus 25% of the amount over $50,200
$129,601 to $209,850 $26,772.50 plus 28% of the amount over $129,600
$209,851 to $411,500 $49,192.50 plus 33% of the amount over $209,850
$411,501 to $439,000 $115,737.00 plus 35% of the amount over $411,500
$439,001 or more $125,362.00 plus 39.6% of the amount over $439,000

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