A Brief Study of Taxes - Tax Brackets

Yesterday I posted a short bit comparing the taxes of two different families (Married filing jointly). Today I'll show you how the taxes are computed. It is really simple as long as you know what the different brackets are. Also, it helps to have excel so that you can program it to compute them for you.

First, here is a list of the income tax brackets for 1998 - 2005 (1999 is excluded because I couldn't find the info if you have access to this information, please send it to me):

    2005   
          $0    $14,600   10%
     $14,601    $59,400   15%
     $59,401   $119,950   25%
    $119,951   $182,800   28%
    $182,801   $326,450   33%
Greater Than   $326,450   35%
                          
              2004              
          $0    $14,300   10%
     $14,301    $58,100   15%
     $58,101   $117,250   25%
    $117,251   $178,650   28%
    $178,651   $319,100   33%
Greater Than   $319,100   35%
                          
             2003              
          $0    $14,000   10%
     $14,001    $56,800   15%
     $56,801   $114,650   25%
    $114,651   $174,700   28%
    $174,701   $311,950   33%
Greater Than   $311,950   35%
                          
             2002              
          $0    $12,000   10%
     $12,001    $46,700   15%
     $46,701   $112,850   27%
    $112,851   $171,950   30%
    $171,951   $307,050   35%
Greater Than   $307,050   39%
                          
             2001              
          $0    $45,200   15%
     $45,201   $109,250   28%
    $109,251   $166,500   31%
    $166,501   $297,350   36%
Greater Than   $297,350   39%
                          
             2000              
          $0    $43,850   15%
     $43,851   $105,950   28%
    $105,951   $161,450   31%
    $161,451   $288,350   36%
Greater Than   $288,350   40%
                          
             1998              
          $0    $42,350   15%
     $42,351   $102,300   28%
    $102,301   $155,950   31%
    $155,951   $278,450   36%
Greater Than   $278,450   40%

Now I'll show you how to calculate the taxes due for a family. For this exercise, we will assume that this household has a taxable income of $60,000 and they are going to file "married filing jointly." We will calculate the tax for the 2005 year.

    2005   
          $0    $14,600   10%
     $14,601    $59,400   15%
     $59,401   $119,950   25%
    $119,951   $182,800   28%
    $182,801   $326,450   33%
Greater Than   $326,450   35%

Looking at the bracket chart you can see that the first $14,600 of the $60,000 will be taxed at 10%, which is $1,460. The next $44,800 ($59,400 - $14,600) will be taxed at the 15% rate which comes to $6,720. The remaining $600 will be taxed at the 25% rate for a tax of $150. Adding them together, we get a total tax bill of $8,330 ($1,460 + $6,720 + $150 = $8,330).

So, there you have it. Hopefully I made it easy enough to understand. The hardest part is getting to the taxable income figure. Maybe I'll cover that someday.

Tags: Taxes, Tax Brackets, How to Compute Taxes, Understanding Taxes