Income tax brackets and differences from state to state

If you are fortunate enough to know someone and can afford an accountant, the tax season is easy. Send it to them and it’s done. But if you pay tax yourself this season, it can be a little trickier.

You may want to learn more about the specifics of your taxes. What are they and how do they get used to it? What is the tax rate on your money and how does where you live affect it? If you’ve never collected your own taxes before, it’s understandable that all of this can be a bit confusing.

So let’s start from the beginning. What is Income Tax and What Do You Need to Know?

What is Income Tax?

Income tax is basically the tax that is charged as income on anything you’ve earned in the past year.

Taxable income is a surprisingly broad category. If you have a full time job, this will likely make up most of your income that will be taxed. But it is far from the only thing that is taxed.

In addition to full-time earnings, freelance and self-employed earnings are also taxed, as is any unemployment benefits you receive from the government. Severance payments can also be taxed. Additional wages and tips are also taxable. Essentially, income from a job is taxed – regardless of whether that job is retained or lost.

The interest you get on an investment, as well as any dividends you receive from it, are subject to taxation. If you receive maintenance from a former spouse, they will also be taxed unless your divorce occurs after 2019. Rental income is also taxed. Other income taxable income may include jury duty fees, royalties, union benefits from a labor strike, lottery winnings, and capital gains (although there is an exception for the sale of your primary residence).

While these are subject to income tax, certain types of income – employee benefits, child benefits, and grants as some notable examples – are not subject to these taxes.

Anything you earn as a form of income that can be taxed goes way beyond what you can find on a W-2 form. And on your 1040 form, which was recently modified, calculate your Adjusted Gross Income (AGI). With this form, taxpayers not only have the opportunity to determine their total taxable income, but also to make individual deductions or apply for tax credits, if they qualify for them.

How is income tax used?

Your federal income taxes go towards funding any number of government programs. You have no say in where to specifically go and how it is used, but there are breakdowns from previous tax years that can give a possible idea of ​​where tax dollars are more likely to go.

Past federal tax receipts paint a picture of where income taxes have gone in the past. As an example, let’s look at the 2014 White House tax certificate. Statistically, almost 27.5% of income taxes went to health care that year. 12.31% of income taxes went to the Medicaid and Children’s Health Insurance Program (CHIP). So if you paid $ 5,000 in income tax for 2014, then $ 1,374.50 went to health care – $ 615.50 of that went to Medicaid and CHIP.

Another major government department targeted by income taxes is defense. In 2014, nearly 24% of income taxes went to defense. This includes ongoing operations, research and development, and salaries for military personnel.

In addition, the taxpayer’s money went to fund several other government services and programs, each of which is broken down into several of their own specific services. These include:

  • Workplace and family security
  • Veteran perks
  • education
  • immigration
  • international affairs
  • Surroundings
  • place
  • Agriculture

More generally, your income taxes help fund the government and its services. The details are usually based on what the current government has most prioritized and what programs it has cut or increased spending.

Income tax brackets: what are the tax rates?

How much income tax you owe depends on how much taxable income you have that year. Income is divided into tax brackets to determine how much it is taxed.

In a parenthesized scheme, those who make more money get a higher percentage for the extra money they make. The ideal implementation of this system is that those who are among the highest percentages of income in the country pay a significantly higher level of taxes on their millions than those who earn far less.

The income you make is taxed at different rates depending on how much you earn: 10%, 12%, 22%, 24%, 32%, 35% and 37%. The specific income brackets that fall into these tax brackets depend on whether you filed your taxes as an individual, as a joint marriage, as a separate marriage, or as a head of household.

If you want to calculate how much tax you owed by knowing how much taxable income you have made that year, you need to calculate all the tax brackets that you are technically in. Let’s say you filed as an individual and made $ 100,000 last year. For a single filer, the first $ 9,700 is taxed at 10% or $ 9,700. The range of $ 9,701 to $ 39,475 is taxed at 12%, which is $ 3,572.88. $ 39,476- $ 84,200 is taxed at 22%, also known as $ 9,839.28. The remainder of your income will be taxed at 24%, which ultimately equates to $ 3,791.76.

Add them up ($ 970 + $ 3,572.88 + $ 9,839.28 + $ 3,791.76) and you end up with $ 18,173.92 in taxes for the year. That means that even though you’re technically in the 24% tax bracket, you’ve paid almost 18.2% total income tax.

Income tax vs. trade tax

The federal government also requires companies to pay income tax. They also recently gave these companies a huge tax break.

Towards the end of 2017, the government passed the Tax Cut and Employment Act (TCJA), and much of that law cut the federal maximum corporate income tax, which was previously 35%, down to 21%. That is the lowest level since the 1930s.

When preparing a tax return for a company, form 1120 is used for a personal tax return instead of 1040. The income is calculated and reported on this form. Taxable income is determined after taking into account all required deductions.

State differences in income tax

As a rule, they are not only subject to federal income tax, but also state income tax.

State income taxes can vary greatly depending on where you live compared to the established federal tax rates. Some states have their own tax brackets for state income tax, some have a flat rate, and some have no state income tax at all. What is your state doing?

States with no income tax

Living in a state with no income tax is the easiest way to calculate how much you owe in state income tax (you don’t!), But it’s also the least likely of these scenarios. Only seven states have absolutely no state income tax. Those are:

    • Alaska
    • Florida
    • Nevada
    • South Dakota
    • Texas
    • Washington
    • Wyoming

    In addition to these seven states, there are two that technically don’t have state income taxes, but the story goes a little bit more. That’s New Hampshire and Tennessee. These states do not tax your wages, but they do tax most of the income from the dividends and interest on your investments. These are taxed at a flat rate – 5% in New Hampshire, 6% in Tennessee.

    There are a few exceptions to what dividends and interest are taxed. Personal life insurance interest is taxable in New Hampshire but individual retirement account (IRA) interest is not.

    States with a flat income tax rate

    America has eight states with a flat income tax rate. That certainly makes it easier to calculate what taxes you will pay than a bracketed system, but it does mean if you make $ 10,000 a year in any of these states, you’ll pay the same state tax rate as someone who makes $ 10 million.

    Here are the eight states with a flat rate:

    Status Income tax rate











    North Carolina






    States with income tax brackets

    The rest of the states in the nation (as well as DC) use their own tax brackets.

    The range of these brackets varies depending on the condition. In North Dakota, the range is between 1.1% and 2.9%. However, in California it is between 1% and 13.3%, in Hawaii between 1.4% and 11%.

    Another key difference between many states is when the highest tax rate takes effect. Some states require very little income to reach the top tier, while others require quite a lot. Alabama’s highest rate (5%) is only $ 3,000, Georgia’s highest rate (5.75%) is $ 7,000, and Oklahoma’s highest rate (5%) is $ 13.00. In the District of Columbia, however, the highest tax bracket of 8.95% applies to income over $ 1 million. New York income taxes will not peak at 8.82% until income reaches $ 1,077,550. Hawaii’s highest bracket is 11%, which equates to an income of over $ 200,000.

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