Why is the equivalent tax rate so different when I add a W-2 of less than $8000? Income of $162547 yields tax of $32467 for rate of 19.9%. Income of $170202 yields tax rate of $34610 for rate of 20.33%. Additional income of $7655 is apparently taxed at $2143 for a rate of 28%. Why so high for the additional $7655 income? I have attached my TurboTax file; just toggle the Kohl's W-2 on and off to see the differences.
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This is correct. In tax terminology this is what is meant by tax brackets. While your average tax rate is 20.33%, your marginal rate (or tax bracket) is 28%. Any additional income you receive will continue to be taxed at 28%, until you reach the next tax bracket of 33%.
The tax bracket system does not mean that all of your income is taxed at a specific rate, but rather you are gradually taxed at a higher rate as you have more income. The lowest tax bracket is 10%, then 15%, then 25%, then 28%. In other words, when your taxable income is more than 0 up until the first bracket line, you are taxed at 10% of the taxable income amount. Income above that is taxed at 15% until the third tax bracket; and so forth. So that is why your realized tax is less than your marginal tax rate, but is also why the amount you are seeing is taxed at 28%, because you are in that bracket.
This is correct. In tax terminology this is what is meant by tax brackets. While your average tax rate is 20.33%, your marginal rate (or tax bracket) is 28%. Any additional income you receive will continue to be taxed at 28%, until you reach the next tax bracket of 33%.
The tax bracket system does not mean that all of your income is taxed at a specific rate, but rather you are gradually taxed at a higher rate as you have more income. The lowest tax bracket is 10%, then 15%, then 25%, then 28%. In other words, when your taxable income is more than 0 up until the first bracket line, you are taxed at 10% of the taxable income amount. Income above that is taxed at 15% until the third tax bracket; and so forth. So that is why your realized tax is less than your marginal tax rate, but is also why the amount you are seeing is taxed at 28%, because you are in that bracket.
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goodlife1010
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starrmin
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