How are taxes figured

how are taxes figured

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No, federal income tax is withheld at a set rate (I believe 28%). You will be able to recoup what is due when you file your tax return. Your exemptions. show more No, federal income tax is withheld at a set rate (I believe 28%). You will be able to recoup what is due when you file your tax return.

Your exemptions lower your overall tax burden by giving a set deduction for each exemption. In addition, you may qualify for tax credits based on the specifics of your situation. This is computed for the tax bracket (probably 15%) that he is in based on your husband's base pay, and the withholdings are calculated accordingly. Every bit of taxable income he gets above his base pay, does not qualify for additional credits and deductions, as those have already been computed. As his income increases, his marginal tax rate will increase as well. I don't know the exact break points, but consider this example.

Base Pay is 34,000. of which 17,000 (it will be more for 2008, but I am using this for illustration only) is exempt because you have a married couple with three kids. the remaining 17,000 is taxed at 15%. so you would owe $2550. but you get a credit of $3000 for three kids so you have a $450 surplus. but he made $25,000 lump sum bonus. so he actually has $59,000 in income of which 17,000 is exempt. leaving $42,000 taxable. The marginal tax rate on the first $20,000 is 15% so you

owe $3000 for that, which is covered by your child tax credit. The next $20,000 is at a higher rate. say 25% for which you owe $5,000 and the remaining $2000 is an even higher rate of 30% which costs you $600 more making th total burden $5600. If they tax the $25000 at 28% they will withhold $7000 which mean his lump sum payment would be $18,000. when you file your taxes, the $5600 you owe will be deducted from the $7000 you paid and you will see a refund of $1400 bringing the total cash value of the bonus to $19,400 after taxes.

Obviously the real calculations are much more complicated and I am not suggesting that these are the actual tax brackets and break points. I am just trying to explain how the receipt of a bonus will likely increase your marginal rate regardless of the exemptions you claim. Good luck to your husband on his re-enlistment.

And again. with bonuses I believe the withholding is at a FIXED RATE of 28% despite what others have written here. I would check that with finance to be sure. This does not mean you are TAXED at this rate. It means they WITHHOLD at this rate in order to cover your taxes. You will get back what is due. If you are sure you will have overpaid, you can always claim more exemptions to level out your withholding so you don't have to wait for a refund.

Source(s): MSG, USA

18 years and counting.

G.I. Reaux · 7 years ago

Source: ca.answers.yahoo.com

Category: Taxes

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