August 13, 2015 at 1:59 pm #141036Bill8769Participant
I am wondering where I can find out tax brackets. If income is $40K/year and you get a raise to $50K/year what % tax bracket is that a difference from? just an exampleSeptember 1, 2015 at 3:56 pm #143334SherrieLParticipant
The IRS has these tax brackets online, for this year. For simplicity, let’s assume the tax brackets are 10% to $10,000, 25% to $50,000, 50% to $100,000 (obviously, made up) This year you make $60,000 gross income. This is not your taxable income, because there are standard deductions for yourself and your kids, or if you itemize you can deduct mortgage interest, sales tax, some part of your medical expenses if they get high enough, heck, there’s whole libraries on the DEDUCTIONS, which affect your gross income, lowering it to get to your Adjusted Gross Income. Let’s assume it’s just you, no dependents, and you take the “standard deduction”, which you look up and find out it’s $5,000. (Also, made up) So, your Adjusted Gross Income is $55,000 ($60,000 – $5,000). Using the tax brackets mentioned above, the first $10,000 is taxed at 10%, for a tax of $1,000. The next $40,000 is taxed at 25%, for a tax of $10,000. The last $5,000 is the only part that gets taxed at 50%, ($10,000+40,000+5,000=55,000) for a tax of $2,500. Add them all together, $1,000+$10,000+$2,500 = $13,500, which is the tax you pay in this scenario, EXCEPT if you get any TAX CREDITS. These might happen if you buy a hybrid car, for example. These credits get deducted directly from the taxes owed, not from your income, so tax credits are way more valuable than tax deductions. Sorry for the long post, but you can see that the question is not an easy one to answer.
If I goofed up any part of this answer, please somebody else jump in and set me (and the OP) straight.September 1, 2015 at 4:01 pm #143337SherrieLParticipant
Try the article above for a relatively simple list of the major exemptions, brackets, credits, etc.September 2, 2015 at 3:44 pm #143468smileyeagle1021Participant
SherrieL did an amazing job of explaining how the tax brackets work, but as a kind of direct response to the indirect question, is it seems like you were trying to ask if you would be better off accepting or not accepting the pay raise. The answer for that is that you are almost always better off accepting the pay raise. The only time that your after tax income would go down because you accepted a pay raise is if you were receiving an income dependent tax credit (such as the earned income credit) that you would no longer be eligible for, but even then, the circumstances would have to be really specific for the pay raise not to completely offset it.
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