subject: Federal Tax Bracket Explained So Easy [print this page] Federal Tax Bracket are extremely bewilderingFederal Tax Bracket are extremely bewildering. So loads of taxpayers utterly get it wrong. Tax attorney Anthony Parent explains what the myths are, and how to stay away from frequent entanglements.
Originally, there was no national income tax. When the Constitution was first ratified, it forbade Congress from implementing an income tax. But the barrier was removed in 1913 by the confirmation of the sixteenth Amendment. Think about this significance, it took an Amendment, which overruled the Constitution, for the federal income tax to be delcared legal. The income tax bracekts were promised to be the most incredible device of all time.
The 2 large claims: that the income tax would bring the so-called robber-barons down to a smaller economic importance and be a boon for the welfare of the nation proved to seductive for the public to resist. Even one hundred years ago, the national income tax was sold as a panacea to liberate the vast majority of the nation from the supposedl oppression of the few. And the only thing it cost the country was liberty.
The 16th Amendment granted Congress virtually unrestricted power to scrutinize and assess taxes using the Federal Tax Bracket structure. This was a quintessential example of bait and switch. And soon, Congress looked to impose other kinds of income taxes.
Congress just doesn't get to impose income tax. Congress also imposes "employment taxes" which are also based on income.
For individual taxpayers, the tax rates are 10%, 15%, 25%, 28%, 33% and 35%. Which rate a taxpayer falls in just doesn't rely on income earnings, but also filing status. None of these tax brackets include the tax charge for employment taxes. This is an important omission.
For certain kinds of income, these tax brackets are entirely immaterial. And as an additional bonus, the employment and self employment taxes referred to above aren't assessed either. Passive income, dividends and long-term capital gains all are taxed at a typically lower rates than the tax brackets.
Of course, these Federal Tax Bracket disregard the fact that many higher income wage earners, the Alternative Minimum Tax might apply. The taxes the AMT assessed may be larger than the standard tax brackets, so don't be tricked by the name. Countless times there is nothing minimum about the AMT. The differences could be titanic. Why? Because although the rate is lower, the IRS is taxing a higher base --- for example, advantageous write-offs like those for state and local taxes paid are not permitted.
There is very little meaning to Tax Brackets. What is more significant is the effective taxable rate. Looking towards Federal Tax Bracket as a important guide is a lapse.
