Understanding Marginal Income Tax Brackets

Understanding Marginal Income Tax Brackets

The 2011 U.S tax code is 5,296 pages.¹

The Treasury Department’s 2011 Federal Tax Regulations guides provide the “official interpretation” of the tax code. Combined, the guides are 13,804 pages.

And each Monday, the Internal Revenue Service publishes a 20- to 50- page bulletin about various aspects of the tax code.

Fortunately, it’s not necessary to wade through these massive libraries to understand how income taxes work. Understanding a few key concepts may provide a solid foundation.

One of the key concepts is marginal income tax brackets.

Taxpayers pay the tax rate in a given bracket only for that portion of their overall income that falls within that bracket’s range.

Tax Works

Seeing how marginal income tax brackets work is helpful because it shows the progressive nature of income taxes. It also helps you visualize how your total tax rate can be calculated. But remember, this material is not intended as tax or legal advice. Please consult a tax professional for specific information regarding your individual situation.

How Federal Income Tax Brackets Work

Say a married couple, filing jointly, in 2012, had a taxable income of $150,000. Each dollar over $142,700—or $7,300—would fall into the 28% federal income tax bracket. However, the couples— total federal tax would have been $29,779, or 20%, of their adjusted gross income.

**See chart aboove**

2012 Federal Income Tax Brackets

Your federal income tax bracket is determined by two factors: your total income and your tax-filing classification.

For the 2012 tax year, there are six tax brackets for ordinary income — ranging from 10% to 35% — and four classifications: single, married filing jointly, married filing separately, and head of household. 

**See Chart above**

 1. Commerce Clearing House, January 2012

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