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What Tax Bracket Am I In?

I get this question a lot and despite the availability of the IRS tax brackets [3], 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 [3] 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?