![]() ![]() ![]() A real-world example of how tax brackets work ![]() If you have $20,000 in the 12% cup, you only pay a 12% income tax on that $20,000 portion of your income, and so on. If you have $9,950 in that 10% cup, you only pay a 10% tax on that portion of your income. You have some in the 10% cup, some in the 12% cup, and so on.įor the portion of your money that's in each cup, you only pay the percentage tax rate for that specific cup. So, you end up with your income spread across a bunch of different cups. That one fills up and overflows down to the next cup, and so on down to a big pool at the bottom. It fills up that small top cup, then the water overflows, down to a bigger cup. There's a small cup at the top where the water begins. The best way to visualize tax brackets is to think of a tiered water fountain. On other portions, you'll pay a much lower tax rate. It is how much you pay on just that portion of your income. If your total income puts you in a particular tax bracket, that is not the percentage you pay on all of your income. The most common misunderstanding is that these represent how much you'll pay on all of your income. Tax payers in this bracket will pay 35% on all income earned over $209,425 or $418,850 depending on their filing statusĮxpressed like this, tax brackets are easy to misunderstand. A single file taxpayer will only pay 10% of their income up to $9,950.Ī couple filing jointly will pay 12% tax on the income they earned between $19,901 and $81,050, but 10% on the first $19,900.Ī single file taxpayer will pay 22% of tax per $1 earned, starting at $40,526.Ī couple filing jointly will pay 24% tax on the dollars earned between $172,751 and $329,850.Ī person filing single will pay 32% taxes on the income they earn over $164,925, and up to $209,425. ![]()
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