# How to Calculate Federal Income Tax

When you hear people say things like “I’m in the 35% income tax bracket,” what are they really saying? Are they truly paying out 35 cents on ever dollar they earn just in federal income tax? And what do people mean by the “marriage penalty?”

When you’re looking at how to calculate income tax, it’s important to remember that we have several tax brackets in the U.S. Here’s how they break down for single people:

From \$0 – \$8,375 you pay 10%, or \$837.50

On the next \$25,625 (\$34,000-\$8,375) you pay 15%, or \$3,844

On the next \$48,400 (\$82,400-\$34,000) you pay 25%, or \$12,100

On the next \$89,450 (\$171,850-\$82,400) you pay 28%, or \$25,046

On the next \$201,800 (\$373,650-\$171,850) you pay 33%, or \$66,594

On everything over \$373,650, you pay 35%

The tax bracket you’re in is the highest one that applies to you. So if you had \$100,000 in net taxable income this year, you’d be in the 28% tax bracket – that’s where your \$100,000 falls. But your true tax rate would be less than that after you made the graduated calculation. If you work it through, you’d wind up paying about \$21,700 on that \$100,000, which would give you an average tax rate of around 21%. That’s still a pretty hefty amount, especially when you factor state income taxes in on top.

If you’re married, those rates change:

From \$0 – \$16,750 you pay 10%, or \$1,675

On the next \$51,250 (\$68,000-\$16,750) you pay 15%, or \$7,687.50

On the next \$69,300 (\$137,300-\$68,000) you pay 25%, or \$17,325

On the next \$71,950 (\$209,250-\$137,300) you pay 28%, or \$20,146

On the next \$164,400 (\$373,650 – \$209,250) you pay 33%, or \$54,252

On everything over \$373,650, you pay 35%

The marriage penalty refers to the difference between how the income of 2 single people would be taxed compared to how the income of a joint filer couple is taxed. In theory, the joint filer tax brackets should be exactly twice as much as the single rates. And, if you compare the two tables above, it is – for the 10% and 15% brackets.

But once you hit 25%, things begin to change. Instead of doubling up the single bracket range of \$34,000-82,400 (which would be \$68,000-\$164,800), the married couple 25% bracket covers \$68,000-\$137,300. That means almost \$28,000 of income is pushed up into the 28% tax bracket. Two single people each earning \$100,000 will pay a lower net tax (2 x \$21,700) than two married people who each earn \$100,000 (which would be about \$44,200).

And that’s the 2010 rates. Remember, we’re in the final year of the tax cuts enacted in 2003. If nothing changes, and Congress allows those rates to expire and revert back to where they were in 2000, here’s what you’ll be paying next year:

From \$0 – \$26,250 you pay 15%, or \$3,937.50
(for Married, filing jointly, it’s 15% of the first \$43,850)

On the next \$37,300 (\$63,550-\$26,250) you pay 28%, or \$10,444
(for Married, filing jointly, it’s 28% of the next \$62,100)

On the next \$69,050 (\$132,600-\$63,550) you pay 31%, or \$21,405.50
(for Married filing jointly, it’s 31% of the next \$55,500)

On the next \$155,750 (\$288,350-\$132,600) you pay 36%, or \$56,070
(for Married, filing jointly, it’s 36% of the next \$126,900)

On everything over \$288,350, you pay 39.6% (married or single)

Now take a look at our \$100,000 income earner. A single person would pay \$25,681, while a married couple earning \$100,000 each would pay \$55,049. That’s a huge difference!

Right now, whether or not Congress will allow the temporary tax brackets to expire and revert back to 2000 rates, is anyone’s guess. Chances are it will be late in the year, and almost assuredly after the November elections, before anything gets settled.

PS – if you’d like to see how to calculate income tax for yourself, try the free calculator over at http://www.moneychimp.com/features/tax_brackets.htm.