Photo: Flickr user John Morgan.
The 2014 tax brackets look much like most years' tax brackets: A chart with several columns, lots of numbers, and a few percentage rates. They don't look that complicated -- and yet many people still misunderstand them.
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For example, if you're in the 28% tax bracket, you might grumble thinking that all your income is being cut by 28%. You might be afraid to earn a few more bucks, lest it kick you into the next tax bracket and cost you a lot of money. That's not how it all works, though, because your tax rate probably isn't what you're assuming it is.
The 2014 tax brackets
First, here's a look at the tax bracketsfor 2014:
Photo: Flickr user Phillip Ingham.
Don't make the mistake of thinking that if you're single and earn between $36,901 and $89,350, then you face a 25% tax on all your income. If you're a single filer with $50,000 in taxable income, you are in the 25% tax bracket -- but you're also in the 10% and 15% brackets.
A close look at the whole column for single filers shows that the first $9,075 of your income is taxed at just 10%, and the next $27,825 is taxed at 15%. It's only the income above $36,900 that's taxed at 25%. According to IRS-provided tax tables, a single filer earning $50,000 in 2014 will face a total tax of $8,363. Divide $8,363 by $50,000 and you'll get 0.17, or 17%. Thus the effective tax rate for that person is 17%, not 25%.
So don't go envying someone in the 15% tax bracket, because you're in it, too. And if you hear anyone grumble about being in the 39.6% tax bracket, know that it's only his or her income above $406,750 that's being taxed at that rate.
At TaxAct.com, you can enter various taxable incomes and see which 2014 tax brackets apply and what their overall effective tax rate is. For example, someone earning $250,000 will be in the 33% bracket, but their effective tax rate will be 26.5%.
So go ahead and review the 2014 tax brackets, but do so knowing the difference between your tax brackets and your actual effective tax rate.
The article 2014 Tax Brackets: Surprise -- You Have More than One originally appeared on Fool.com.
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