Take the Mystery Out of Federal Tax Tables

May 7th 2016

Federal tax tables can appear confusing at a glance, but with a little information on the basics, you'll feel much more confident completing your taxes. In this blog, we'll break down the components of federal tax tables to make next tax season as smooth as possible. 

Progressive Tax

Income tax in the United States is a progressive tax, meaning more is paid when there is more taxable income. This fact leads to some big misconceptions. Income for everyone, no matter how much they make, is taxed at the same level on the same amounts. For example, a person with $500,000 a year in taxable income pays the same rate on their first $50,000 as someone whose income doesn't exceed $50,000. That same principle carries through all the tax brackets, but the income in each higher bracket is taxed at a higher rate than the previous bracket.

Effective Tax Rate

Many people mistakenly believe that all income is taxed higher when there is more income, and that is simply not the case. When you are looking at a tax table, those progressive rates are calculated in. That's part of the computation that goes into figuring the effective tax rate. Once all taxable income is totaled, it is then measured against the tax tables to get the actual percentage of income paid as tax for the specific tax return. That is what is called the effective tax rate. 

How Deductions Affect Federal Tax Tables: Understanding When Deductions Help

Most taxpayers realize that they want to get their taxable income down to avoid higher taxes. Likewise, they understand that they can either accept the standard deduction for their filing status or choose to itemize. Confusion comes when people think something that is deductible helps them, when in fact it may not. For example, a taxpayer may give a weekly amount to the church all year long, thinking it will help on taxes. If the donation doesn't reach the threshold of the standard deduction ($12,200 for married filing joint in 2013) the charitable deduction changes nothing.

Most taxpayers who use itemizing have a mortgage and claim the mortgage interest. That's usually a big enough amount to get them to a point where other deductions, such as charitable contributions and work expenses, can reduce taxable income. Remember that unless the standardized threshold is passed, it's in your best interests not to itemize. 

Finding Federal Tax Tables

The IRS is actively trying to reduce paper filings and as such, are making it harder to find the tax booklets many tax filers are accustomed to. That said, it's easy to find tables online at IRS.gov or on other sites, like this summary on Forbes.com, that includes information on credits and brackets for 2013. Remember, several factors impact tax rates - and what table to use. 

Filing Status

The tables are not the same across the board. It's important to make sure numbers are taken from the correct one for your filing status. For example, tax filers completing a tax return as married filing joint will not cross into a 15% taxable bracket until reporting income over $17,850 for tax year 2013. Someone filing head of household will cross that threshold at $12,750, while an individual filer will do so at $8,925. As we can see, status not only impacts standard deductions, it changes rate levels as well. 

Taxable Income

Once you have determined your taxable income - and remember, that's not the adjusted gross, it's income after deductions and exemptions - find the appropriate range on the tax tables. That's done by first finding your filing status, then finding the dollar amount that corresponds to your taxable income. Look across to the right to find the tax you will be paying. 

Tax tables, when fully understood, are easy to use. Of course, other parts of the tax preparation process are more complicated. It's wise to consult tax experts to help navigate the process. Software can guarantee that calculations are correct, but it cannot cover all the variables that come with each unique tax situation. 

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