How To Compute a Tax Bracket

Tax brackets change yearly but you can calculate your federal income tax bracket anytime. Just consider your salaries and wages (estimated taxable income) and current savings accounts and retirement (withdrawals). You must calculate your estimated or actual tax bracket because it will help you in your financial planning like retirement savings and help you in anticipating taxes before the year ends. Below are tips and instructions on how to compute a tax bracket.

  • Approximate your current taxable income. Calculate your salary average by summing your complete salary in a year then divide the sum by 12 (months). Include all tips, wages, and salaries. If you don’t anticipate that your annual taxable income will change, then use exact numbers from your last year’s form W-2 or tax return.
  • Determine your bracket and its meaning. Currently, there are 6 tax brackets for income taxes: 10%, 15%, 25%, 28%, 33%, and 35%. Each bracket determines the first part of your income that’s defined by particular brackets. The 10% covers the first $1000 of your income, then the succeeding brackets cover the following $1000 of your income, until it reach your maximum income level. Your marginal tax bracket is the last tax bracket that you’re using and it is also referred as your tax bracket.
  • Consider applicable retirement plan distributions. Include any kinds of retirement account withdrawal minimums because they’re considered your normal income and they’re taxable. Treat all lump sum withdrawals in your retirement plan as taxable income. Retirement plan withdrawals are considered normal income especially if they’re lump-sum withdrawals. It doesn’t matter if your withdrawal is (Roth IRA) non taxable or taxable (Standard IRA), your withdrawal amount will add to your total income and will push you to a higher tax bracket for the current year. The Jobs and Growth Tax Relief Reconciliation Act of 2003 that provides lowered income tax brackets and tax cuts will expire on 2011. There is a prediction that the income tax levels will increase to cover the expenses of Medicare, Medicaid programs, and federal Social Security.
  • Add your taxable income (First Step with your retirement income (Second Step). The total is your adjusted gross income that is used in determining income tax brackets.
  • Verify your the filing status if your income tax. You must determine it before or after you retire. Marital status is your married life status in the final day before the year ends. Select one of the following: Household head or Single, Qualified Widow(er), Married Filing Separately, Married Filing Jointly.
  • Visit to navigate the Federal Tax Rate Schedule. Utilize the tax rate of the current year. Use the future tax rate of the succeeding year if it’s already posted.
  • Use your filing status and calculated taxable income as guide to check your tax rate schedule. Your filing status and income will unite on a single tax bracket. Like, if you’re using 2008 Federal Tax Rate Schedule, you will notice  “single” in the filing status and there’s an adjusted gross income that’s between $32,500 to $78,850 that will be determine by your 25% tax bracket.

Deductions and dependents are not factors in calculating income tax bracket. Both are not interest earned or dividends paid. These extra factors may change often, and they should only be utilized in filing actual taxes.


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