subject: New To Federal Income Tax Brackets And Need Some Help [print this page] Federal Income Tax Brackets are extremely perplexing. So a lot of taxpayers totally get it erroneous. Tax lawyer Anthony Parent explains what the myths are, and how to avoid common problems.
In the beginning, there was no federal income tax. Congress wasn't granted this control to tax income originally, but that didn't stop Congress from attempting to do so. Congress imposed the first income Federal Income Tax Brackets but the tax was held to be unconstitutional. From raising revenue for collective programs to demanding a tax upon the rich to "even the playng field."
The Progressives eventually won the day in getting the Amendment they desired passed which would allow Congress to tax income. Progressives' guarantees to use the new income tax to just tax the wealthy were quickly ignored.
The Revenue Act of 1913 was accepted. Promptly, Congress went to apply Tax Brackets to more people than promised. FDR was succesful in manufacturing an completely new type of tax imposed on earnings: the employment taxes.
What further drives the confusion is that there are taxes on income earnings that aren't termed income taxes. Well there are employment taxes, which Congress gets to impose a tax on, there are Social Security, Medicare and Unemployment insurance taxes.
For individual taxpayers, the tax rates are 10%, 15%, 25%, 28%, 33% and 35%. Filing status also determines which tax bracket applies, not just income earnings. None of these tax brackets include the tax charge for employment taxes. This is an incredible omission.
Yet these tax brackets do not apply to some types of income. And on certain types of income, employment taxes aren't imposed either. Individuals receive preferable treatment for income obtained from long-term capital gains. Dividends are also taxed at better rates, and of course, tax free municipal bonds.
But in various ways, these Federal Income Tax Brackets even miscalute just the income tax paid. The explanation is that the Alternative Minimum Tax may impose a completely higher tax. And that's what will have to be paid --- the Alternative Minmum Tax rate. The explanation the Alternative Minimum Tax is larger is the IRS won't allow certain write-offs.
Federal Income Tax Brackets influence incredibly little. What is more essential is the effective taxable rate. Relying on the Federal Income Tax Brackets to plan what you will owe can follow to largemistakes.
