What Tax Bracket Am I In?

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I get this question a lot and despite the availability of the IRS tax brackets, it’s not always clear how to figure out which tax bracket you are in. Fortunately with a little math and some approximation, it’s quite simple to figure out which tax bracket you are in. A common mistake is to just look at your salary and look at the table, that ignores your personal exemption (and any you get for dependents) plus your deductions. We can do a better job at approximating than that!

Why do you want to know? The biggest reason most people want to know is for tax planning purposes. If you’re going to be in a higher tax bracket this year, it pays to accelerate your deductions (make larger donations this year, pay your mortgage a little early to get the interest deduction, etc.) into 2011 rather than wait until 2012. If you know you’re going to be in a higher tax bracket next year, it pays to delay them (assuming the time difference is not a factor). In the end, will it matter if you are in the 28% or 25% tax bracket? Not necessarily but we want to get as accurate as possible without going too deep that we get caught up in the minor details.

So, let’s figure this out.

2012 Tax Brackets

Until the official tax brackets are released, we have to use inflation statistics to project what the 2012 tax brackets will look like.

Tax Bracket Single Married Filing Jointly Head of Household
10% Bracket $0 – $8,500 $0 – $17,400 $0 – $12,400
15% Bracket $8,700 – $35,500 $17,400 – $70,700 $12,400 – $47,350
25% Bracket $35,500 – $85,650 $70,700 – $142,700 $47,350 – $122,300
28% Bracket $85,650 – $178,650 $142,700 – $217,450 $122,300 – $198,050
33% Bracket $178,650 – $388,350 $217,450 – $388,350 $198,050 – $388,350
35% Bracket $388,350+ $388,350+ $388,350+

Here’s how you can figure out your tax bracket, simply take your annual income and subtract your personal exemption ($3,700 for 2011, you get one per person you support including spouse and dependents)and any deductions you have. This doesn’t have to be an exact number so you can approximate. I get the most recent paystub and calculate my annual salary after my payroll deductions (FICA taxes, retirement contributions). Then I think about my most common deductions – mortgage interest and property taxes, around $15,000 a year. Do a little math and I figure out I’m in the 28% tax bracket. It doesn’t need to be exact because I just need to have an idea so I can make proper decisions.

Now that I know that I’m in the 28% tax bracket, I know that every dollar I contribute to a 401(k) will put 28 cents into my pocket in lower taxes. I also know that a $100 donation, since I itemize, will put $28 in my pocket (and $100 into the pocket of the charity I support). If I think my income will go down next year and my taxes will be lower, I should opt to accelerate deductions today because I know my tax rate is higher.

Hopefully this can help you answer the question – What tax bracket am I in?

{ 13 comments, please add your thoughts now! }

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13 Responses to “What Tax Bracket Am I In?”

  1. Brad M says:

    One comment to consider. Just because you’re “in” a tax bracket, that doesn’t mean you actually pay that percentage in taxes. I’m married and we’re in the 28% bracket, but only pay 21% because we all have a progressive tax rate where the first $17K gets taxed at 10%, the next $52K gets taxed at 15%, etc.

  2. freeby50 says:

    Brad makes a good point. People should understand that the tax bracket isn’t the same thing as how much you pay in taxes in total. Its a common misconception.

  3. Strebkr says:

    I would venture to say the average person doesn’t understand the progressive concept. They think that the second they go from 35,499 to 35,501 they need to multiply all 35,501 * 15%

  4. Charles says:

    Contributing more to 401k and donation to charity will bring down your total taxable income so they could actually bring you down to a lower tax bracket.

  5. Thakar says:

    Hello there, this is a very good post. I liked it so much

  6. Yes, exactly. Understanding the “progressive” or “marginal” nature of taxes is key. I hear too many people say that 28% of their income goes to the feds. They may be in that “tax bracket,” but they’re not losing 28% of their total income.

  7. Scott says:

    If everyone here understands what you are saying about the progression of taxes, why assume that we are the only educated ones here?

  8. Robert says:

    Can I lower my adjusted gross income from my job by the losses from my business?

  9. Brayden says:

    So if I’m in the 15% bracket, then why does 20% keep getting taken out of my paycheck?

    • Jim says:

      That’s a result of your withholdings, you will probably want to talk to your employer about adjusting it so you don’t get a huge rebate next April.

  10. Adam says:

    So I need to understand if I’m reading this correctly. The part that says:

    I get the most recent paystub and calculate my annual salary after my payroll deductions (FICA taxes, retirement contributions).

    So let’s say I make $100k, but after taxes and deductions (FICA, state, medical/dental insurance, 401(k)) my annual salaray is $70k. Then I subtract my personal exemptions (3,700 * 4 = 14,800) then my mortgage insurance and property taxes (let’s say $6k). That puts me well into the 15% bracket. However, the same calculations done on $100k (not $70k) would put me in the 25% bracket. Just making sure I’m understanding correctly that the calculation should be done on post tax/deduction income. Correct?

  11. Sam A says:

    Just wanted to say hi to Jim. We went to college together. Just happened to stumble on this page

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