In order to properly file your federal income tax return and pay any tax that you owe, it is necessary to understand your income tax bracket, your filing status, and which income tax rate(s) apply to you. There are currently six marginal income tax brackets and five federal filing statuses. The amount of tax you owe will depend on your filing status and how much taxable income you earn.
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This article discusses marginal income tax brackets, federal filing statuses, and income tax rates, so you can start preparing for the 2013 filing season and developing a tax strategy .
Marginal Income Tax Brackets
Your marginal income tax bracket basically represents the highest tax rate that you must pay on your income. There are currently six marginal income tax brackets for each federal filing status: 10, 15, 25, 28, 33, and 35 percent.
The marginal tax bracket system is a gradual tax schedule, which essentially means the more you earn, the more tax you pay. The amount of taxable income that you earn determines which tax bracket(s) you fall into. It is important to realize that only the money you earn within a certain tax bracket is taxed at that rate. In other words, if you earned more in 2012 than you did in 2011 and thus moved into a higher tax bracket, only the money that falls within that higher tax bracket is taxed at the higher rate.
So, for example, if you move from the 25 percent tax bracket to the 28 percent tax bracket, you may make the mistake of believing that all of your income is now taxed at that higher rate.
However, only the money that you earn within the 28 percent bracket is taxed at that rate.
The structure of federal income tax brackets was first implemented by the IRS in the early 1900s in an attempt to create a progressive tax system that would demand less from lower-income individuals. This system, plus a series of tax credits and tax deductions. have allowed nearly half of Americans to avoid owing federal income tax altogether [Source: The Tax Foundation ].
Federal Filing Statuses
Your filing status determines your filing requirements (whether or not you are required to file a tax return and which return to file), your standard deduction amount, your eligibility for certain tax credits and tax deductions, and your income tax. There are five federal filing statuses based on marital status and other conditions: single, married filing separately, married filing jointly, head of household, and qualifying widow(er) with dependent child.
When you fill out your federal income tax return, you must specify what your filing status is on the tax form. Review each filing status carefully and choose the one that best fits your situation. If you qualify for more than one filing status, you are allowed to choose the one that offers you the lowest tax.
You can file as “single” if you are unmarried, divorced, legally separated, or widowed as of the last day of the calendar year (Dec. 31). Individuals who have dependents, but who were not the primary caregiver for more than half of the year, must also use this filing status. The IRS generally requires a taxpayer to file as “single” if you do not meet the criteria for the other filing statuses.
Married Filing Separately