Tax brackets are often misunderstood. Did you know that they have little to do with how much you will pay — especially at the higher-end brackets? Did you know that tax brackets will never tell you how much you will pay in other taxes like social security and medicare? Also hidden is what your employer pays in taxes or what you will pay as self-employment tax if you are self-employed. It is easy to incorrectly estimate your tax liability.
These tax brackets are essentially useless in determining an accurate estimate of what your tax liability will be. They are only a rough guide, in the loosest sense of the word. The only way to calculate your tax liability is by completing your personal 1040, with all schedules — especially schedule SE for those who are self-employed, or Alternative Minimum Tax (AMT) for higher income earners. It is very easy, especially for recent arrivals to the higher tax brackets, to get withholding and estimated payments wrong.
An individual must file returns as one of the following types of taxpayers, which then determines the applicable tax bracket:
- Married couples filing a joint return and surviving spouses
- Single taxpayers qualifying as heads of households;
- Single taxpayers other than surviving spouses and heads of households
- Married individuals filing separate returns
Same-sex couples who are legally married in a jurisdiction that recognizes same-sex marriages will be treated as married for all federal tax purposes, even if the couple lives in a jurisdiction that does not recognize the validity of same-sex marriages. This treatment applies to any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory, or a foreign country. However, it does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.
Same-sex spouses who file an original tax return on or after September 16, 2013, generally must file as married filing jointly or married filing separately. For tax year 2012, same-sex spouses who filed their tax return before September 16, 2013, may choose (but are not required) to amend their federal tax return to file as married filing jointly or married filing separately. For tax years 2011 and earlier, same-sex spouses who filed timely tax returns may choose (but are not required) to amend their federal tax return to file as married filing jointly or married filing separately, provided that the period of limitations for amending the return has not expired.
Under the graduated system of taxation, taxpayers are taxed at higher marginal tax rates as their taxable income increases. Each tax rate applies to a range of income called a bracket, with higher rates applying to higher brackets. Although the same marginal tax rates apply no matter whether a taxpayer's filing status is single, married filing a joint return/surviving spouse, married filing a separate return, or head of household, different bracket amounts apply to each group. For example, each income bracket associated with a particular tax rate for married taxpayers filing separate returns is half that of married taxpayers filing jointly and surviving spouses.
Additional Taxes
Kiddie Tax: In addition to these general tax rates, the "kiddie tax" may tax the unearned income of a child up to the age of 24 at the parent's tax rate.
For tax years beginning after December 31, 2012, two additional taxes can apply to higher-income individuals: The 3.8 percent net investment income (NII) tax is imposed on the lesser of (i) net investment income for the tax year, or (ii) the excess of modified adjusted gross income for the tax year over $200,000 ($250,000 for joint filers and surviving spouses, and $125,000 for married taxpayers filing separately) the additional 0.9 percent Medicare tax is imposed on certain taxpayers who receive wages from employment and self-employment income during any tax year in excess of $200,000 ($250,000 for joint filers and surviving spouses, and $125,000 for married taxpayers filing separately).
If you need assistance with tax planning, tax preparation, or tax resolution, contact us. We can help. Call us at 888-727-8796 or email info@irsmedic.com.
