Question about federal income taxes...

[Regret My New Name]

Basically, I'm trying to figure out how much I will be making if I was working a 40 hr work week at $17. Now I looked up the tax brackets at http://www.moneychimp.com/features/tax_brackets.htm and it seems as if I should expect to have a 25% tax, right?

So I'm thinking, if I made a little bit less, like $16.25/hr, wouldn't I make more spendable money since I would be in a lower tax bracket?

I usually wouldn't think much of this, but the problem is that I'm in a rather tight position right now... Am I looking at this correct? Would really be better off getting the position at 16.25/hr than $17/hr? Why the hell is that bracket so huge too? Why such a big jump from 15% to 25% because just because of a couple thousand dollars difference... I could see if it went up like 5% for people who make over 34k, but a 10% jump? The same as someone who makes 80k??? So, am I looking at this wrong or what?

[LiberalAndProud]

1. The first $16.25 each hour will be taxed at 15%.

If you make $17/hour, 75 cents will be taxed at 25%.

Feel better now?

[Regret My New Name]

2. Really?

Yeah, that makes me feel better and makes far more sense. I figured there was something like that... Which I guess makes sense, huh? How else would they know in advanced how much I would make. hah! I feel stupid.Okay, so will the money only be taxed once, or is there like some sort of retroactive thing where the difference not paid has to be paid once the next bracket is reached...

I feel stupid, but I never gave much thought about this before.

[LiberalAndProud]

6. Your link does a pretty good job of explaining tax brackets.

Just keep in mind that our income tax is graduated. Even the highest earners in our country pay 15% on the bottom dollars.

You'll only pay income tax once on each dollar earned. Your employer will use either the percentage method of calculating your FIT withholding, or the Tax Table method, and it will depend on how much you make and how many dependents you claim on your W-4 form.

Your payroll tax withholding is just an educated guess on how much you need to pay in. That's why we have tax day on April 15, you settle up on that day, either the government owes you, or you owe the government, rarely does it come out even, in my experience.

[Travis_0004]

8. Not 100% sure what your question is

Lets assume somebody makes 10,025 a year.

If we do the math (on 10,025)then the first 8,350 is taxed at 10% (which is 835.00), and the remaining amount (1,675) is taxed at 15%, which equals 251.25. If we add the numbers up, it 1,086.25.

The IRS assumes people can not figure this out, so they do the math for you, and you just look up the amount in the chart.

When money is deducted from your paycheck, you fill out a form that tells your employer how much to deduct. (this is because two people with the same income and different amounts of dependents will owe more or less tax. Money is not set aside for a certain bracket (just overall taxes), you just do the taxes at the end of the year, and find out how much you owe or don't owe.

You adjust your withholding so your employer takes out the correct amount of tax. If you can write off all your income (let say you are a college student), you can tell your employer to not withhold any taxes (or very very little), to minimize your refund.

Another example is a person like me. I have two jobs, one of which I am self employed (and taxes are not withheld). At the end of the year, I owe 30% taxes on the money I made while self employed, so I have my other employer withhold enough taxes for both jobs, so I don't owe money.

I'm a senior in college in accounting and finance, so I can answer any basic questions you have.

[theoldman]

3. Don't be fooled by tax brackets.

The more money you earn, the more money shows up in your paycheck. Can you imagine a person hesitating to go from $80,000 a years to $100,000 per year because they will be in a higher tax bracket? Of course not, so take as much money as you can get and forget the tax bracket.

[Regret My New Name]

4. Yeah, I'm seeing that now...

I was just trying to make things more difficult because I'm teh stupid sometimes.

[pnwmom]

5. That wasn't a stupid question. But it is a common misconception, so your question

and answer probably helped someone else, too.

[nessa]

7. Use IRS Publication 15

http://www.irs.ustreas.gov/pub/irs-pdf/p15.pdf

$17 an hour weekly single rate with zero allowances

17 * 40 = 680 Gross
Tax 8.40 + 15% of any wages over $200

8.40 + (.15 * (680-200))
8.40 + (.15 * 480)
8.40 + 72 = 80.40

Soc Sec .062 * 680 = 42.16
Medicare .0145 * 680 = 9.86

Take home (without considering state & local) 680 - 80.40 - 42.16 - 9.86 = 547.58

$16.25 an hour weekly single rate with zero allowances

$16.25 an hour with zero allowances
16.25 * 40 = 650 Gross
Tax 8.40 + 15% of any wages over $200

8.40 + (.15 * (650-200))
8.40 + (.15 * 450)
8.40 + 67.50 = 75.90

Soc Sec .062 * 650 = 40.30
Medicare .0145 * 650 = 9.43

Take home (without considering state & local tax or union dues) 650 - 75.90 - 40.30 - 9.43 = 524.37



With 1 allowance
17 * 40 = 680
1 allowance = 70.90
680 - 70.90 = 609.1
8.40 + (.15 * (609.1 - 200))
8.40 + (.15 * (409.1))
8.40 + 61.37
69.77

Soc Sec .062 * 680 = 42.16
Medicare .0145 * 680 = 9.86

Take home (without considering state & local or union dues) 680 - 69.77 - 42.16 - 9.86 = 558.21

With 1 allowance
16.25 * 40 = 650
1 allowance = 70.90
650 - 70.90 = 579.10
8.40 + (.15 * (579.10 - 200))
8.40 + (.15 * (379.1))
8.40 + 56.87 = 65.27

Soc Sec .062 * 650 = 40.30
Medicare .0145 * 650 = 9.43

Take home (without considering state & local or union dues) 650 - 65.27 - 40.30 - 9.43 = 535