Your 2018 tax bracket and federal tax rate are both crucial if you want to keep as much of your money as possible. The first step to surviving tax season is to know which bracket you fall into and which category you’ll file under. From there, do everything possible to reduce your taxable income — without concealing income, of course. If you’re uncertain about anything, ask for advice from a professional and use an income tax calculator.
Here are the answers to some of the most common questions about the tax system, IRS tax brackets and more:
What Is My Tax Bracket?
Your federal income tax bracket is based on your tax-filing status and your income. To help you quickly figure out which IRS income tax bracket you’re in, check the IRS federal tax table for 2018:
|Federal Tax Brackets 2018 for Income Taxes Filed by April 15, 2019|
|Tax Bracket||Single||Married Filing Jointly or Qualifying Widow(er)||Married Filing Separately||Head of Household|
|10%||$0 to $9,700||$0 to $19,400||$0 to $9,700||$0 to $13,850|
|12%||$9,701 to $39,475||$19,401 to $78,950||$9,701 to $39,475||$13,851 to $52,850|
|22%||$39,476 to $84,200||$78,951 to $168,400||$39,476 to $84,200||$52,851 to $84,200|
|24%||$84,201 to $160,725||$168,401 to $321,450||$84,201 to $160,725||$84,201 to $160,700|
|32%||$160,726 to $204,100||$321,451 to $408,200||$160,726 to $204,100||$160,701 to $204,100|
|35%||$204,101 to $510,300||$408,201 to $612,350||$204,101 to $306,175||$204,101 to $510,300|
|37%||$510,301 or more||$612,351 or more||$306,176 or more||$510,301 or more|
|Editor’s note: Residents of Maine and Massachusetts have until April 17, 2019 to file their 2018 Form 1040.|
What Is a Tax Bracket?
Federal income tax brackets are a system the U.S. uses to determine how much you are taxed. Your U.S. tax bracket determines how much money you’ll owe the IRS or how much of a federal income tax refund you will receive. IRS tax brackets are based on your taxable income level, as different amounts are taxed at different federal income tax rates.
How Tax Brackets Work
Your tax bracket is determined by your income and your filing status. However, it’s important to understand that your entire income is not taxed at your tax bracket rate. That’s because the U.S. uses a graduated tax system, which means that taxpayers pay an increasing rate as their income rises.
To understand how tax brackets work, take the example of a single filer who earns $50,000 a year. This income would put this person in the 22 percent tax rate bracket, but they do not pay 22 percent on all of their income. According to the IRS tax table, the tax paid on this bracket is $4,543 — the sum of the graduated taxes paid on incomes up to $39,745 — plus 22 percent of any income over $39,475, which in this case is $10,525. Twenty-two percent of that is $2,315.50, which means the total tax this individual would owe is $6,858.50.
Now let’s say you are a married couple filing jointly whose taxable annual income is $700,000. This puts you in the highest tax bracket, which is taxed at a rate of 37 percent. However, this tax rate only applies to any income over $612,350, and that amount gets added to $164,709.50 — the sum of the graduated taxes paid on incomes up to $612,350. This couple would owe 37 percent on $87,650, which amounts to $32,430.50. That gets added to $164,709.50, so the total taxes owed by this couple would be $197,140.
How Is the Marginal Tax Rate Determined for Different Incomes In the Same Bracket?
Taxpayers in the first bracket who earn the least income pay a flat rate of 10 percent in every filing category. Those who fall into the remaining brackets pay a flat rate that’s applicable to everyone in the bracket and then a percentage of the income they earn over the bracket’s minimum. For example, head of household filers who earn between $84,200 and $160,700 will pay $12,962 plus 24 percent of any amount over $84,200, according to the IRS.
How Many Federal Tax Brackets Are There?
Each individual filing category contains seven income-based federal tax brackets for tax year 2018. Brackets range from those who made no income at all to the wealthiest individuals — in the highest federal tax rate bracket — who earn $612,350 or more in a tax year.
What Are the Different Tax Filing Categories?
Virtually all Americans — those not filing as a trust or estate — fall into one of four tax-filing categories. The category you fall under will be an indicator of which 2018 tax forms you’ll need to fill out and what tax bracket applies to your situation:
- Individual taxpayers — also known as “single” filing status for Form 1040
- Married individuals filing jointly and surviving spouses
- Married individuals filing separately
- Heads of household
Who Qualifies as Head of Household When Filing Taxes?
You could qualify to file as head of household if you meet all of the following requirements:
- You’re unmarried or considered unmarried on the last day of the year
- You paid more than half the cost of keeping up a home for the year
- A qualifying person lived with you for more than half the year
However, if the qualifying person you’re claiming is a dependent parent, they don’t have to live with you for you to file head of household. If you qualify as a head of household filer, your 2018 tax rate will be lower and you’ll receive a 2018 standard deduction that’s higher than if you were to file single or married filing separately.
Are There Ways to Lower Taxable Income Other Than Deductions?
Yes. Aside from deductions, there are ways to lower your IRS tax rate by reducing your taxable income. For example, contributing to tax-deferred retirement accounts such as a 401k or IRA can help taxpayers shave thousands off their annual taxable income, all while saving for life after their earning years. You’ll eventually have to pay taxes when that money is withdrawn, but retirees have even more ways available to help them wiggle into a lower tax bracket when that time comes. For example, certain medical expenses like in-home care and medications are considered tax-deductible.
For working people with low to moderate income, the earned income tax credit reduces the amount of tax you owe and might even give you a refund. To qualify for the EITC, you must have earned income as an employee or from running or owning a business or farm. You must meet some other rules, which could include having a qualifying child.
What Are the Most Recent Changes to the Federal Bracket System?
The Tax Cuts and Jobs Act was enacted in December 2017, which changed the tax rates for the 2018 tax year. For most people, tax rates will be reduced. The 2018 tax rates are 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent.
In addition, for 2018, the tax rates and brackets for the unearned income of a child have changed and are no longer affected by the tax situation of the child’s parents. The new tax rates applied to a child’s unearned income of more than $2,550 are 24 percent, 35 percent and 37 percent.
The Tax Cuts and Jobs Act also increased the standard deduction for all filers. For single filers, the deduction has increased from $6,350 to $12,000; for married filing jointly and qualifying widow(er)s, the deduction has increased from $12,700 to $24,000; for married filing separately, the deduction has increased from $6,350 to $12,000; and for head of household the deduction has increased from $9,350 to $18,000.
However, the tax reform also suspended personal exemptions and discontinued certain deductions.
Can I Deduct My Way Down to a Lower Tax Bracket?
Sure, but it’s illegal to try to conceal income from the IRS. The likelihood of getting caught is high, and the penalties for doing so are severe. However, the IRS allows taxpayers to reduce their level of taxable income by taking a range of legal tax deductions such as charitable donations, home business costs and some education-related expenses.
Does Every State Use the Same Tax Bracket System?
The answer depends on the state. According to the Tax Foundation, tax structures, rates, allowable tax deductions and tax exemptions vary wildly from state-to-state. So yes, some states have a tiered bracket system but other states employ a flat tax with one rate for all incomes. Seven states don’t levy any income tax at all.
When Is It Better for Married Couples to File Jointly?
Even with defined married tax brackets and married-filing-jointly tax brackets, this is a complex question that doesn’t come with a single, uniform answer. “Generally, it is better to file a joint return because taxes are lower for married filing separately and the standard deduction rate is higher,” said Mark Steber, chief tax officer at Jackson Hewitt. “There are more credits and deductions available on married filing jointly returns.”
It makes sense to file jointly when each spouse earns roughly the same income and there aren’t a lot of complicated, itemized deductions. To figure out whether it’s more advantageous to file separately or jointly, consider preparing your IRS tax return both ways. Then you can decide what to go with, based on the refund or balance due from each method.
Keep Reading: 50 Tax Write-Offs You Don’t Know About
When Should Married Couples File Separately?
Couples who have lopsided incomes or assets and who plan on taking many itemized deductions should seek professional advice on how to answer the complicated question of whether to file separately. Generally, couples should consider filing separately if filing jointly bumps them into a higher tax bracket. They should remember, however, that filing separately might cost them perks such as valuable child tax credits, and it might reduce the amount they can contribute to retirement funds such as IRAs.
What’s the Difference Between Married Filing Separately and Married Filing Jointly?
When a married couple files separately, each partner acknowledges the marriage, but submits separate returns and doesn’t take legal responsibility for the other spouse’s return. On the other hand, filing jointly means a married couple lumps together their incomes and expenses.
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More on Taxes
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- Watch: Why You Shouldn’t Assume You’re Getting a Tax Refund
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