Marginal tax rates vs. effective tax rates, or what Mitt's and Newt's taxes tell us
Last week at my other tax blog: Free File and the economy; Capital gains tax rate

2011 and 2012 tax rates, tax brackets

One positive thing from the ongoing Republican presidential candidate campaign is the focus it's put on tax rates and income tax brackets.

So that you don't have to wonder -- or search -- as today's Daily Tax Tip you'll find below tables detailing the 2011 and 2012 income tax rates and the amount of income in each bracket to which those rates are applied.

The Internal Revenue Code currently has six tax rates. Recent attention has been on the top tax rate, but the lowest one -- 10 percent -- was created as part of George W's tax cuts. All six rates are in effect through 2012 thanks to the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

How much tax each of us pays is figured by calculating how much of our income falls into each rate's income bracket. And those income tax brackets are created for each of the available filing status options.

The 2011 table is the one you use this year in filing your 2011 tax returns. The 2012 table should help with your tax planning this year.

So here you go, tax filers. Your 2011 federal income tax rates and tax brackets.

2011 Income Tax Rates, Tax Brackets
Tax
Rate
Single       
Head of
Household 
Married
Filing Jointly
or Surviving Spouse         
Married
Filing Separately

10%

up to $8,500

up to $12,150 up to
$17,000
up to $8,500

15%

$8,501 to $34,500 $12,151 to $46,250 $17,001 to $69,000 $8,501 to $34,500

25%

$34,501 to $83,600
$46,251 to $119,400 $69,001 to $139,350 $34,501 to $69,675

28%

$83,601 to $174,400 $119,401 to $193,350 $139,351 to $212,300 $69,676 to $106,150

33%
$174,401    to $379,150 $193,351    to $379,150

$212,301 to $379, 150

$105,151 to $189, 575


35%

$379,151 or more
$379,151 or more $379,151
or more
$189,576
or more

Done with your 2011 taxes? Ready to get to work on your 2012 taxes? Far be it from me to scoff at such tax geekiness craziness obsessive-compulsiveness dedication and thoroughness.

So here are the 2012 figures.

2012 Income Tax Rates, Tax Brackets
Tax
Rate
Single       
Head of
Household 
Married
Filing Jointly
or Surviving Spouse         
Married
Filing Separately

10%

up to $8,700

up to $12,400 up to
$17,400
up to $8,700

15%

$8,701 to $35,350 $12,401 to $47,350 $17,401 to $70,700 $8,701 to $35,350

25%

$35,351 to $85,650
$47,351 to $122,300 $70,701 to $142,700 $35,351 to $71,350

28%

$85,651 to $178,650 $122,301 to $198,050 $142,701 to $217,450 $71,351 to $108,725

33%
$178,651    to $388,350 $198,051    to $388,350

$217,451 to $388,350

$108,726 to $194,175


35%

$388,351 or more
$388,351 or more $388,351
or more
$194,176
or more

Marginal vs. effective taxes: Of course, these tax tables provide a general idea of your potential tax bill.

Since our tax system is progressive, what we pay Uncle Sam each April is taxed at all the tax rates into which our income falls. That is, the amount of income taxes due increases as our income increases, but it does so in steps.

And that means that we must look beyond the tables and examine how our marginal and effective tax rates are related.

As an example, even if a single taxpayer has taxable income of $50,000 in 2011, she's not going to owe $12,500, or 25 percent of her income since it's in the 25 percent income tax bracket. That top tax rate is her marginal tax rate, or the tax rate applied to the last dollar she earns.

What she actually owes is her effective tax rate. And that's reached by calculating her tax bill at the various applicable rates into which it falls and then dividing that tax bill by her income.

Her first $8,500 is taxed at 10 percent, with the next $26,000 taxed at 15 percent and the final $15,500 of her income taxed at her top rate of 25 percent.

That makes her tax bill $8,625 instead of $12,500. Here's the down-and-dirty math:

$8,500 x 10 percent = $850
$26,000 x 15 percent = $3,900
$15,500 x 25 percent = $3,875

And $850 + $3,900 + $3,875 = $8,625

So her real, effective or average (pick your term) tax rate on the $50,000 is 17.25 percent even though her marginal tax rate is 25 percent.

This example is, of course, very simplified and for illustration purposes only. But I hope it gives you an idea of how tax rates and tax brackets work together to help us figure our final IRS bill each year.

And hang on. Later this year, the IRS will update the income tax bracket ranges to reflect inflation -- and tax rates depending on what Congress does or doesn't do -- for the 2013 tax year.

You also might find these items of interest:

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Chris

Minor adjustments in last years numbers.

Chris
Owner Cel Financial Services
Registered bonded California CTEC Tax Preparer
Please visit my website for all your Income Tax Fillmore needs.
http://www.taxprepfillmore.com/

Kay

Yes, it's inflation based. That's why the 2011 income bracket ranges weren't very much bigger than 2010's amounts.

Financial Samurai

Great to see a bump up in income albeit ever so small ($9,000 for the top tax bracket) to $388,000. Is this basically indexed for inflation of around 2.5%?

Thx,

Sam

The comments to this entry are closed.