Great question LWEME,
Income taxes are computed on your TAXABLE INCOME (after taking the Standard Deduction or Itemizing more direct Deductions).
Each income tax bracket applies a tax rate to each level of income on a progressively growing level.
Once all the applicable income taxes are computed on the income falling within those tax brackets, the sum of all your income tax liabilities, including Self-Employment Payroll Tax, are divided against your Adjusted Gross Income to give you an Effective Income Tax Rate average.
I prefer to use Taxable Income as the denominator, which provides a clearer and more reliable average rate and not Adjusted Gross Income.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
