tax
4 facts about your federal tax rate
Knowing how to compute your federal tax rate is necessary in order to know how much money you will owe the Internal Revenue Service, or IRS. It's helpful to look at an online calculator to determine your federal tax rate, but it's also important to know some basic rules about taxes. Here are four facts you should know.
- The federal tax rate is based on a percentage of taxable income. The higher your income, the higher the rate. There are currently six different tax rate brackets: 10, 15, 25, 28, 33 and 35 percent.
- If you are in a higher tax bracket, it doesn't mean all your income will be taxed at the higher marginal tax rate. The U.S. tax system is progressive, so that much of your income is taxed at lower tax rates. Only the amount of money you make that exceeds the threshold of the higher bracket level is taxed at the higher rate.
- Because not all of your money is taxed at your highest marginal rate, your effective tax rate will be lower. You can find your effective tax rate by calculating the overall taxes paid as a percentage of your overall income.
- Your income has to reach a certain level in order for you to go to a higher tax bracket, but that point varies, depending on your filing status. The major types of filing statuses for the federal tax rate are: single filers, married filing jointly or qualifying widow-widower, married filing separately and head of household.
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