Tip: High Bracket. In 1944, the highest federal income tax bracket was a 94%.It applied to all income above $200,000 a year and applied to all taxpayers, regardless of filing status.
Source: Tax Foundation, 2011
The 2010 U.S tax code is 3,728 pages.
The Treasury Department’s 2010 Federal Tax Regulations guides provide the “official interpretation” of the tax code. Combined, the guides are 12,625 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
Fast Fact: First Brackets. In 1913 — immediately after the 16th Amendment gaveCongress the power to levy taxes on income — the government set up a system of 7 federal income tax brackets with rates ranging between 1% and 7%. Only 1 in 271 people had to pay even the lowest rate.
Source: Tax Foundation, 2011; CCH, 2011
Seeing how marginal income tax bracket work is helpful because it shows how 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 2011 had a taxable income of $150,000. Each dollar over $139,350—or $10,650—would fall into the 28% federal income tax bracket. However, the couples— total federal tax was $30,060, or 20%, of their adjusted gross income.
This is a hypothetical example used for illustrative purposes only. It assumes no tax credits apply.
2011 Federal Income Tax Brackets
Your federal income tax bracket is determined by two factors: Your total income and tax-filing classification.
For the 2011 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.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG, LLC to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2011 FMG, LLC.