As featured in The Wall Street Journal, Money Magazine, and more!
     

2014 Federal Income Tax Brackets and Marginal Rates

This article was written by in Featured, Taxes. 11 comments.


Anyone who likes getting a look at their future tax expenses might be interested in seeing what next year’s tax brackets and tax rates will be. The IRS has now announced the official rates and brackets for 2014, although the numbers have been predicted for months because the IRS uses a simple process of inflation and somewhat round numbers to determine the brackets. Congress isn’t expected to make any changes to the tax laws this year, unlike the last several years when the question to continue Bush-era tax breaks needed to be addressed every year.

Keep in mind that the 2014 federal income tax brackets don’t matter to most people until they file their 2014 income tax returns in early 2015. That’s a long way off. But for those who pay estimated taxes for 2014 income throughout the year, the information doesn’t hurt. Chances are you’re getting ready to settle your 2013 income taxes, which will be due April 15, 2014. In that case, the rates and brackets you want to review are the 2013 rates and brackets.

Before getting to the numbers, keep in mind what marginal rates are. Your marginal rate is what you pay on your last dollar of income earned. If, for example, you will earn $50,000 in 2014, your marginal rate will be 25%. That does not mean you pay 25% on all of your income.

In fact, there is a strongly-held belief that the tax code penalizes people for earning more. I’ve heard people expressing disappointment with receiving a bonus because it might push them into the next tax bracket. Yes, as you earn more money, you’ll owe more income tax (in general), but when you’re in a higher tax bracket, it doesn’t affect the tax you owe on income below that new bracket’s threshold. There’s no big jump — the higher tax rate applies only to the income you earn above the top bracket’s baseline.

(Employers have a funny way of withholding taxes on your bonus payment, but to the IRS, and in the end when you finally settle your tax bill, a dollar is a dollar whether it was earned as salary or bonus.)

There’s one instance when it does make sense to be concerned about receiving more income — when that income comes in the form of an asset that’s not very liquid. Here’s an example: In the rare circumstance you win a new car in a contest or sweepstakes, the value of that car must be treated as income. If you win a $60,000 car, you’re going to have to come up with more cash to pay taxes on that $60,000. This is one of the reasons many who end up winning these kinds of contests end up selling the prize.

The 2014 federal income tax brackets and marginal rates.

The federal income tax brackets and marginal rates have now been officially announced by the IRS. These were the rates predicted by Wolters Kluwer, CCH several months ago, based on the rate of inflation the IRS announced it would use in September. The Tax Foundation, a non-partisan tax research group based in Washington, D.C., has also shared the official information.

Rate Single Filers Married Joint Filers Head of Household Filers
10% $0 to $9,075 $0 to $18,150 $0 to $12,950
15% $9,075 to $36,900 $18,150 to $73,800 $12,950 to $49,400
25% $36,900 to $89,350 $73,800 to $148,850 $49,400 to $127,550
28% $89,350 to $186,350 $148,850 to $226,850 $127,550 to $206,600
33% $186,350 to $405,100 $226,850 to $405,100 $206,600 to $405,100
35% $405,100 to $406,750 $405,100 to $457,600 $405,100 to $432,200
39.6% $406,750 and up $457,600 and up $432,200 and up

Determining your effective tax rate.

The table above lists marginal tax rates. What might be more interesting to calculate is your effective tax rate. For example, if you’re single, you earn $100,000 in taxable income in 2014, your effective tax rate — how much tax you end up paying as a percentage of your income — will likely be much lower than the marginal tax rate of 28%. It could be half of that. After taking out the standard deduction for your income, which in 2014 will be $6,200, leaves you with $93,800 in taxable income, although there might be other deductions that apply to you.

With $93,800 in income after the standard deduction, you would owe 10% of $9,075, 15% of $27,825 (the total income covered in the second tax bracket), 25% of $52,450, and 28% of $4,450 (the fourth tax bracket up to your taxable income). That calculation results in $19,439 in federal income tax — an effective tax rate of 19.4% based on the total income of $100,000. That amount could be further reduced by any tax credits for which you might qualify. Your effective tax rate would be considered lower if you’ve had other reductions to your gross income, like 401(k) contributions.

The new standard deductions and personal exemption.

As inflation effects the tax brackets, it also affects the standard deduction amounts. I mentioned above that the standard deduction for single files will be $6,200 in 2014, an increase of $100. For married taxpayers filing jointly, the standard deduction will be $12,400, an increase of $200. For heads of household, the amount of the standard deduction will increase $150 to $9,100.

The personal exemption for 2014 will be $3,950.

What is the possibility of Congress changing the tax rates?

Congress could make a new law at any time that changes tax rates. Last year, there was a big debate that centered around the extension of certain tax cuts. The government made the decision to break the cycle in which the tax rates required a vote every year, so for once, we might be able to get through the next few months without a debate about tax rates. Given Congress’s recent proclivity for negotiating like terrorists with hostages rather than sensible adults who were elected as representatives of the citizens of this country, there’s no perfect prediction of what might occur over the next few months.

Updated December 30, 2013 and originally published October 2, 2013. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

Email Email Print Print
avatar
Points: ♦127,485
Rank: Platinum
About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 11 comments… read them below or add one }

avatar Evan

Don’t forget about the extra 3.8% for some

Reply to this comment

avatar Luke Landes ♦127,485 (Platinum)

Ah, see I didn’t even touch tax on investment income here, or other federal taxes other than income like Medicare. I guess if you can include those it’ll change your effective tax rate… Investment income tax is worth another table in a new post.

Reply to this comment

avatar Suzanne

Since I love planning ahead, having this information is very helpful. It can be difficult to plan when you and your spouse are self employed. I would rather overpay estimated taxes quarterly than have to owe next April. Like most people though, I don’t want to give the government too much of my money unless absolutely necessary.

Reply to this comment

avatar Lance @ Money Life and More

Hopefully exemptions go up as well, but I guess we’ll have to wait and see for the official word!

Reply to this comment

avatar Luke Landes ♦127,485 (Platinum)

CCH is forecasting that the personal exemption will increase $50 to $3,950.

Reply to this comment

avatar Newlywed

Yes! finally something decent in the first year of marriage.

Reply to this comment

avatar qixx ♦1,890 (Half-Dollar)

Assuming the same tax credits as last year my effetive tax rate will increase by 2.04% this year over last year. If no credits this year it will increase by 4.48%.

Reply to this comment

avatar Ivan Widjaya

It’s nice to learn a little bit about tax rates. Although I am no accountant and I abhor anything tax-related. It is still nice to learn about it. Are self-employed rates the same?

Reply to this comment

avatar Gary D. Burleson

:(the total income covered in the second tax bracket) Can you break this down a bit, I am not following how you get the 15% of $27,825. Thanks.

Reply to this comment

avatar Luke Landes ♦127,485 (Platinum)

Sure, Gary. The 15% tax bracket applies to $27,875 of the total $93,800 taxable income in the example. That’s the upper limit of the bracket subtracted by the lower limit: $36,900 minus $9,075. That’s the slice of the income that’s taxed at the 15% rate. 10% is the rate on the first $9,075. The next $27,875 is taxed at 15%.

Reply to this comment

avatar fern

Effect is a noun, affect is a verb! You should have used the latter, affect, in your discussion about inflation.

Reply to this comment

Leave a Comment

Connect with Facebook

Note: Use your name or a unique handle, not the name of a website or business. No deep links or business URLs are allowed. Spam, including promotional linking to a company website, will be deleted. By submitting your comment you are agreeing to these terms and conditions.

Notify me of followup comments via e-mail. You can also subscribe without commenting.

Previous post:

Next post: