Tax Brackets

[skives]

So here's my question. My wife is starting a new job soon and will be doubling her income. We file our taxes married jointly and with her new income we will stay in the same tax bracket (15%). My question is do married couples at the higher end of the tax bracket pay more taxes than a married couple in the same tax bracket but at the lower end of it? I appreciate any responses

Thanks!!!

[corn18]

Well, let's look at an example:

Married could #1:

$30,000 Income
15% tax barcket
$4,500 taxes

Married couple #2:
$70,000 Income
15% tax bracket
$9,000 taxes

So, yes, if you make more money, you pay more taxes. BUT, the percentage has stayed the same.

Tom

[feh]

Yes, because more dollars are taxed at 15%. Same would be true for a single person.

[feh]

Well, let's look at an example:

Married could #1:

$30,000 Income
15% tax barcket
$4,500 taxes

Married couple #2:
$70,000 Income
15% tax bracket
$9,000 taxes

So, yes, if you make more money, you pay more taxes. BUT, the percentage has stayed the same.

Tom

This is incorrect. Not every dollar is taxed at 15%. The percentages paid by these theoretical couples is not the same.

Google "effective tax rate".

[Bob B.]

Let's say you make 55K per year, and your wife's new job pays her 55K per year.

Based on only your income, (and you took the standard deduction, and no kids, and no tax credits) you would pay:

55K salary minus the standard deduction of $12,400 minus the exemptions for you and your wife of $7,900 = $34,700 taxable income. The first $18,150 is taxed at 10% = $1,815 tax. The remaining $16,500 of your income is taxed at 15% = $2,485.50 tax. Total tax is $1,815+$2,428.50 = $4,297.50 tax, or an effective tax rate of 7.8% of your salary.

Based on your income and your wife's income, you would pay:

110K salary minus the standard deduction minus the two exemptions = $97,600 of taxable income. The same $18,150 is taxed at 10%. The remaining $71,500 is taxed at 15% = $10,732.50 of tax. Total tax is $1,815+$10,732.50 = $12,547.50 tax, or an effective tax rate of 11.4% of yours and her salary.

[corn18]

This is incorrect. Not every dollar is taxed at 15%. The percentages paid by these theoretical couples is not the same.

Google "effective tax rate".

You are correct. But it does not materially change the answer. If you make more but stay in the same tax bracket, you pay the same percentage on the incrementally higher income. Once you make $1 more than the upper limit of a particular tax bracket, only that $1 is taxed at the higher rate.

[Bob B.]

You are correct. But it does not materially change the answer. If you make more but stay in the same tax bracket, you pay the same percentage on the incrementally higher income. Once you make $1 more than the upper limit of a particular tax bracket, only that $1 is taxed at the higher rate.

Right, but the effective tax rate changes quite a bit when salary is doubled. See my example above.

[feh]

You are correct. But it does not materially change the answer.

Depends on your definition of "materially", I guess. In the most extreme cases (just reaching the 15% bracket and just avoiding the 25% bracket), the effect tax rates are 5.9% and 11.8%. Exactly double the rate.

[corn18]

Depends on your definition of "materially", I guess. In the most extreme cases (just reaching the 15% bracket and just avoiding the 25% bracket), the effect tax rates are 5.9% and 11.8%. Exactly double the rate.

But doubling inside a tax bracket has no effect on the rate inside the tax bracket. While the marginal rate goes up, that's only because the amount of income in the 15% tax bracket is increasing. If you go from $18,451 to $74,900, you are staying in the 15% tax bracket. As you move up the slider, the amount of 15% taxable income begins to overpower the amount of 10% income so the marginal rate increases. But you pay the same 15% tax on the 18,451st dollar as you do on the 74,900th dollar.

[feh]

But doubling inside a tax bracket has no effect on the rate inside the tax bracket. While the marginal rate goes up, that's only because the amount of income in the 15% tax bracket is increasing. If you go from $18,451 to $74,900, you are staying in the 15% tax bracket. As you move up the slider, the amount of 15% taxable income begins to overpower the amount of 10% income so the marginal rate increases. But you pay the same 15% tax on the 18,451st dollar as you do on the 74,900th dollar.

Yes, but I don't think that's what the OP was asking. I was just trying to answer his question.

Assuming standard deduction:

Effective tax rate for a couple earning $30500: 5.9%
Effective tax rate for a couple earning $86200: 11.8%

Tax bill in each case: $1800, $10170


(Federal income taxes only)

[corn18]

Yes, but I don't think that's what the OP was asking. I was just trying to answer his question.

Assuming standard deduction:

Effective tax rate for a couple earning $30500: 5.9%
Effective tax rate for a couple earning $86200: 11.8%

Tax bill in each case: $1800, $10170


(Federal income taxes only)

I think your answer is better than my answer.

[BadSaver]

Progressive Tax

Each ADDITIONAL dollar earned is taxed at its own rate. Dollars earned at the 10% rate are taxed at that rate. If the next dollar earned is in the 15% bracket, it is taxed at the 15% rate. This dollar does not affect the taxation of the dollars before it in the 10% bracket. Each additional dollar earned in the 15% bracket continues to be taxed at the 15% rate until the next bracket is reached. Therefore, it is a progressive tax system. Meaning, it should not discourage you from trying to make the next dollar.

i'm on my iPad at work. Hope this quick post makes sense...