Tax Day 2016 for IRS Tax Year 2015, also known as your return filing deadline, is April 18.
If you haven’t yet filed, here are the IRS tax rates for your 2015 earnings with background and commentary. These change from year to year to protect against something the Tax Foundation calls “bracket creep” or when you get bumped up based on inflation not because you got a nice raise or found a higher-earning job.
Curious who will pay the most for tax year 2015? The top marginal rate is 39.6%.
Looking for your federal refund status? If you’ve already filed you can use this part of the IRS website to check.
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What are the 2015 marginal tax rates?
The following was written by Luke Landes and edited by Consumerism Commentary for length and clarity.
There’s a big misconception about taxes. People are afraid to earn more if it means they’re going to be “bumped into the next tax bracket.” It is not true that being in a higher tax bracket will cause all of your income to be taxed at a higher rate. The only income tax at the highest rate is the income you earn above and beyond the lower threshold for that rate.
Make sure that sinks in. You will always owe the lowest tax rate, 10 percent, on your first $9,225 of earned income if you file as a single individual (not filing jointly). You could be a CEO earning $5 million this year, but even still, your first $9,225 is taxed at 10 percent. That’s how the brackets work.
So if your total taxable income is $9,000, you owe 10 percent of that, or $900. In this case, your marginal tax rate, 10 percent, is exactly the same as your effective tax rate. You get your effective tax rate by dividing the amount of total tax you owe over your total income. This is what Warren Buffett has famously referred to when explaining how his secretary pays more tax than he does. Buffett earns a lot of income from investments which are taxed at a lower rate than earned income, and that smaller percentage affects the average — the effective tax rate for all his income.
One more thing to keep in mind is that if you are employed and your employer takes tax payments from your paycheck automatically, you pay your 2015 tax bill throughout the year. The total tax you owe when you file your tax return takes that into account. If your total tax bill is less than what you’ve paid to the federal government throughout the year, you’ll get a refund. If you haven’t covered your entire bill through paycheck withholding, you owe the government.
The 2015 federal income marginal tax rates and brackets by filing status.
|Rate||Single Filers||Married Joint Filers||Head of Household Filers|
|10%||$0 to $9,225||$0 to $18,450||$0 to $13,150|
|15%||$9,225 to $37,450||$18,450 to $74,900||$13,150 to $50,200|
|25%||$37,450 to $90,750||$74,900 to $151,200||$50,200 to $129,600|
|28%||$90,750 to $189,300||$151,200 to $230,450||$129,600 to $209,850|
|33%||$189,300 to $411,500||$230,450 to $411,500||$209,850 to $411,500|
|35%||$411,500 to $413,200||$411,500 to $464,850||$411,500 to $464,850|
|39.6%||$413,200 and up||$464,850 and up||$464,850 and up|
New standard deductions and personal exemptions.
As inflation effects the tax brackets, it also affects the standard deduction amounts. Married individuals filing joint returns can take a $12,600 standard deduction. That means that these filers can reduce their total income by this amount. Heads of household have a standard deduction of $9,250. Unmarried taxpayers that don’t file as surviving spouses or heads of household can take a standard deduction of $6,300, as can married individuals filing separately.
In practice, that means that you can earn $15,300 and still owe only $900 in tax, using the example earlier of the individual in the 10 percent tax bracket. $15,300 minus $6,300 is $9,000, and 10 percent of $9,000 is $900.
In 2014, the personal exemption amount was $3,950, and that increases by $50 to $4,000 for 2014. This exemption means you can earn even more money without owing tax. Add two exemptions — for example, if you’re a single father with one dependent — and you can earn $23,300 and still owe a total tax bill of $900. This doesn’t even take into account various tax credits you could qualify for, like the Child Tax Credit, the Hope Scholarship Credit, the Lifetime Learning Credit, and the Earned Income Credit.
The personal exemption phases out starting with an income of $154,950 for married individual filing separate returns, $258,250 for single filers, $284,050 for heads of household, and $309,900 for married individuals filing jointly.
How to calculate your tax.
The days of doing our own tax returns by hand is long gone. The IRS still provides a handy table for quick calculations, but these days, TurboTax, H&R Block, other software, or your real live accountant will handle this for you. But it’s good to understand the basic calculation.
Assume your gross income is $110,300, you are single, and you have no dependents. You can subtract the personal exemption for a result of $106,300. You can choose to itemize deductions or take the standard deduction. Taking the standard deduction of $6,300 reduces your taxable income to $100,000. Now you apply the marginal tax rates.
With $100,000 in income after the standard deduction, you would owe 10% of $9,225, 15% of $28,225 (the total income covered in the second tax bracket), 25% of $53,300, and 28% of $9,250 (the fourth tax bracket up to your taxable income). You can take a shortcut; you maxed out the first two tax brackets, and that always adds up to $18,481.25. So you add 28% of your income over $90,750 to $18,481.25, for a total federal income tax bill of $21,071.25 — an effective tax rate of 19.1% based on the total gross income of $110,300. 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. Keep in mind that some investment income could be taxed separately, at a lower interest rate.
Still working on 2014 taxes? Please see these 2014 tax rates.
Updated April 14, 2016 and originally published March 22, 2016.