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Federal Income Tax Brackets

Federal Income Tax Brackets and New Tax Rates

The term “tax bracket” is the highest tax rate an individual is charged based on his income. 2018-2019 federal income tax brackets and new tax rates, under the federal income tax system, there are different rates that apply to different portions of an individual income. So people in, say, the 25% tax bracket do not pay the 25% of their income in taxes. All they are taxed at 25% of the last dollar they earn be it income or whatever.

Tax brackets are used to show you the tax rate you are expected to pay on every part of your income. For instance, if you are not yet married, that is a single man or woman, the lowest tax rate of 10 percent is applied to $9,525 of your first income The next part of your income is then taxed at 12 percent, 2% more of the first chunk or part of your income. This progressively continues to the top of your taxable income.

Progressive system, Marginal rates

The federal income tax is progressive. This simply means that a continuous increment of tax rates. The federal income tax increases as an individual taxable income increases. For instance, in the year 2018, income was taxed at seven different rates: 10 per cent, 12 per cent, 22 per cent, 24 per cent, 32 per cent, 35 per cent and 37 per cent. These seven different rates are known as marginal rates.

Marginal rates entail that each of the rates applies only to a particular slice of income and not to your total income. The rate that is applied to the top part of your income is known as your tax bracket. The progressive tax system guarantees that every individual that pays tax will pay particular rates on the same levels of taxable income. This has a general effect, which means that individuals that earn higher incomes will pay higher taxes.

Effective Tax Rate 

While it’s certain you will pay income tax at different tax brackets or rates all through the year, the exact percentage of your income that is transferred to the IRS is usually called your effective tax rate. The rate you must pay on your last earning is always higher than your effective tax rate. Take for instance, if the income you earn is divided into two and the first income is taxed at 10%, while the other half income is taxed at 12 per cent, then your effective tax rate of 11% simply  means that 11 per cent of all the income or dollar that you earn in that particular year will go to the IRS.

The 2018-2019 Federal Income Tax Brackets and New Tax Rates

Just like earlier stated, the new or recent tax rules retain seven federal income tax brackets. However, the tax rates and thresholds now differ. The seven federal income tax brackets are: 10%, 12%, 22%, 24%, 32%, 35% and 37%. The federal income tax bracket is dependent on taxable income and filing status. How much you will actually owe will depend on your income and your filing status.

Deductions affect your tax bracket

An individual’s taxable income can be reduced through deductions. Deduction of taxable income means you are taxed less of your earning in the aforementioned seven federal income tax brackets. For instance, If your highest income tax bracket this year is 32% when you claim a deduction worth a thousand dollar, you will also save a whooping $320 in taxes. But on the contrary, if your federal income tax bracket for that year is at 12%, you will save $120 in tax when you claim the same deduction of $1000.

Our first set of tables displays the federal income tax brackets and the federal income tax rates that are applied to the 2018 tax year and relate to the tax return you will file in the year 2019. The second set of the table shows the income brackets and income rates that are applied to this year 2019 tax year and relate to the tax return you will file in 2020.

How tax brackets work

The United States of America has a progressive tax system. Progressive tax system means the higher the income, the higher the tax. In other words, it means individuals that earn higher taxable incomes will equally pay higher federal income tax rates.

Being “in” a tax bracket does not mean you are expected to pay the federal income tax rate on every purchase you make. The progressive tax system means that individuals that have higher taxable are subjected to higher income tax rates. While people whose federal income tax is lower will equally pay a lower federal income tax rates.

It is the government that decides how much tax you owe. This is achieved by dividing an individual’s taxable income into portions or chunks.  These chunks are otherwise known as tax brackets. It is of paramount importance to know that each of the chunks is taxed at the equivalent tax rate. One of the advantages of this is that you are not expected to pay the rate on all your income in any of federal income tax brackets you are into. Different states in the country might have different income brackets. It can be a flat income tax. It can also be a no income tax at all.

Getting a Lower Income Tax Bracket 
The two common ways of having a reduced tax bill are deductions and credits. 
  • A tax deduction reduces how much of your earning or income subjected to taxes. It reduces your tax by the percentage of your highest federal income tax bracket. By taking all the deduction s you claimed, you can reduce your taxable income as well as pay a lower tax rate.
  • Tax credits reduce the amount of income tax you are owing. Credits do not affect the income tax bracket you are in.
  • Another way to reduce your taxable income that is not common is contributing to a traditional IRA.  IRAs give tax breaks that can save you a lot of tax.


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