How much will you have to pay in income taxes? The answer is complicated considering the United States’ bloated tax code changes every year. Between numerous worksheets, exemptions, deductions, and credits, it’s no wonder why nearly 80 million Americans hire tax professionals to help them file returns. However, if you’d like to get a jump on estimating your tax liability for the year, knowing which tax bracket you’re in is a good place to start.
A tax bracket is a range of incomes taxed at a given rate. America has a progressive tax system, meaning your tax rate increases as your taxable income rises. The seven different tax rates range from 10% to 39.6%. In order to prevent bracket creep, a situation in which inflation pushes taxpayers into higher tax brackets, the IRS adjusts the income limits for each tax bracket. In fact, the IRS adjusts more than 40 tax provisions for inflation every year. The tax brackets for your 2015 taxes, which are due April 18, 2016, are listed below.
One of the most common misconceptions is that your entire income is taxed at a single percentage found in the table. Instead, it’s a gradual tax schedule. For example, if you have taxable income of $100,000 and you’re filing a joint return, you don’t pay 25% on the entire $100,000. The first $18,450 of your income is taxed at 10%, the next $56,449 ($74,900 minus $18,451) is taxed at 15%, and the remaining $25,099 ($100,000 minus $74,901) is taxed at 25%. Your marginal tax rate is 25% since that is the highest tax rate your income is subject to, but your tax bill of $16,587.10 only represents 16% of your income.
Here are the tax items for 2015 of greatest interest to most taxpayers, according to the IRS:
- The tax rate of 39.6 percent affects singles whose income exceeds $413,200 ($464,850 for married taxpayers filing a joint return), up from $406,750 and $457,600, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
- The standard deduction rises to $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively, for tax year 2014. The standard deduction for heads of household rises to $9,250, up from $9,100.
- The limitation for itemized deductions to be claimed on tax year 2015 returns of individuals begins with incomes of $258,250 or more ($309,900 for married couples filing jointly).
- The personal exemption for tax year 2015 rises to $4,000, up from the 2014 exemption of $3,950. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). It phases out completely at $380,750 ($432,400 for married couples filing jointly.)
- The Alternative Minimum Tax exemption amount for tax year 2015 is $53,600 ($83,400, for married couples filing jointly). The 2014 exemption amount was $52,800 ($82,100 for married couples filing jointly).
- The 2015 maximum Earned Income Credit amount is $6,242 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,143 for tax year 2014. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
- Estates of decedents who die during 2015 have a basic exclusion amount of $5,430,000, up from a total of $5,340,000 for estates of decedents who died in 2014.
- For 2015, the exclusion from tax on a gift to a spouse who is not a U.S. citizen is $147,000, up from $145,000 for 2014.
- For 2015, the foreign earned income exclusion breaks the six-figure mark, rising to $100,800, up from $99,200 for 2014.
- The annual exclusion for gifts remains at $14,000 for 2015.
- The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) rises to $2,550, up $50 dollars from the amount for 2014.
- Under the small business health care tax credit, the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,800 for tax year 2015, up from $25,400 for 2014.
- For taxpayers wanting to know how their tax brackets will change, the new tax brackets for 2016 are listed below.
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