I am afraid my wonderful two-reply thesis contained a lot of garbage, misinformation. So, I deleted it.
Of course, the Tax Tables do work, they’re logical, and well-designed, but they’re a little misleading, with those 10%, 12%, 22%, 24%, etc. brackets being mentioned without explaining how each one is used to process your Taxable Income (TaxInc) into Tax due as found in the Tax Tables. An example may clarify how the Tables work.
Tax brackets for current tax year 2019, Single filer info.
Tax rate
| Single filers
TaxInc Chunks
| Width of
TaxInc Chunk
|
10% | $ 0 – 9,700 | $ 9,700 |
12% | 9,701 – 39,475 | 29,774 * |
22% | 39,476 – 84,200 | 44,724 |
24% | 84,201 – . . . | N/A |
Example: Joe is a Single Filer with $80,000 in TaxInc. He is indeed in the 22% marginal tax rate bracket, but this only applies to the part of his TaxInc between $ 39,476 and 84,200, which is $ 40,526 **.
He only pays | 10% on the first | $ 9,700 | , which is | $ 970 |
then only | 12% on the next | * 29,774 | , which is | 3,573 |
and finally | 22% on the last | ** 40,526 | , which is | 8,916 |
| | | $ 80,000 | | $ 13,459 |
Total tax due is $13,459.
If you look up $80,000 in the Tax Tables, you find $ 13,464, which is $ 5 more, but close enough, I suppose. I triple-checked my work and found nothing wrong. I might be inclined to include the table with my return and pay only $ 13,459, but is it worth chancing an audit? If the difference were $100, yeah, it’s probably worth it.
Point is, don’t figure your tax per the example, just let the example show you that you are NOT taxed at 22% of your Taxable Income of $80,000. Just look up Taxable income in the Tax Tables. They do work, and fairly, given the desired result set by Congress and the IRS.
BTW, Tax_Due / Taxable_Income gives a percent:
$ 13,459 / $ 80,000 ≈ 0.168 = 16.8%,
and, of course, not 22%. I suppose you could call this 16.8% the “blended tax rate” or “effective tax rate”. Whatever you call it, it’s the rate at which your Taxable Income is actually taxed.
