Tip: High Bracket. In 1944, the highest federal income tax bracket was 94%. It applied to all income above $200,000 a year and applied to all taxpayers, regardless of filing status.
Source: Tax Policy Center, 2015
By any measure, the tax code is huge. According to Commerce Clearing House's Standard Federal Tax Reporter it's up to 74,608 pages in length.¹
And each Monday, the Internal Revenue Service publishes a 20- to 50- page bulletin about various aspects of the tax code.²
Fortunately, it’s not necessary to wade through these massive libraries to understand how income taxes work. Understanding a few key concepts may provide a solid foundation.
One of the key concepts is marginal income tax brackets.
Taxpayers pay the tax rate in a given bracket only for that portion of their overall income that falls within that bracket’s range.
Fast Fact: First Brackets. In 1913 — immediately after the 16th Amendment gave Congress the power to levy taxes on income — the government set up a system of seven federal income tax brackets with rates ranging between 1% and 7%. Only 1 in 271 people had to pay even the lowest rate.
Source: Tax Policy Center, 2015; CCH, 2015
Seeing how marginal income tax brackets work is helpful because it shows the progressive nature of income taxes. It also helps you visualize how your total tax rate can be calculated. But remember, this material is not intended as tax or legal advice. Please consult a tax professional for specific information regarding your individual situation.
How Federal Income Tax Brackets Work
Say a married couple, filing jointly, in 2016, had a taxable income of $175,000. Each dollar over $151,900—or $23,100—would fall into the 28% federal income tax bracket. However, the couples' total federal tax would have been $35,986—just about 20%, of their adjusted gross income.
This is a hypothetical example used for illustrative purposes only. It assumes no tax credits apply.
2016 Federal Income Tax Brackets
Your federal income tax bracket is determined by two factors: your total income and your tax-filing classification.
For the 2016 tax year, there are seven tax brackets for ordinary income — ranging from 10% to 39.6% — and four classifications: single, married filing jointly, married filing separately, and head of household.
- Washington Examiner, April 15, 2015
- Internal Revenue Service, 2016
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