Believe it or not, 2012 federal tax brackets are essentially useless in determining an accurate estimate of what your tax liability will be. This is because these tax brackets are for ordinary income tax rates; they contain lower dividend, long-term capital gains rates, and do not account for the types of income that are tax free.

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Currently, there are six different federal income tax rates that create income tax brackets. Briefly, the six different rates are 10%, 15%, 25%, 28%, 33%, and 35%.  As a general rule, which rate you fall into depends not just on your income, but your type of income. The four different filing statuses are single, head-of-household, married separate, and married joint which set the floor and ceiling of each income tax bracket.

A comparison of the two tax bracket scheme: Bush “tax cuts” v. Clinton “tax increases.”

Over the years, argument have arisen over whether or not higher tax brackets increase federal revenues. These are the current tax brackets for married people filing single which were lowered by President Bush tax cuts:

10% Bracket $0 – $17,000 $0 – $8,500
15% Bracket $17,001 – $69,000 $8,501 – $34,500
25% Bracket $69,001 – $139,350 $34,501 – $83,600
28% Bracket $139,351 – $212,300 $83,601 – $174,400
33% Bracket $212,301 – $379,150 $174,401 – $379,150
35% Bracket Over $379,150 Over $379,150

The previous tax brackets had higher taxes for everyone, including the lowest income levels. Now compare  the tax brackets Congressional Democrats and President Obama wanted to restore in December of 2010, also known as the Clinton Era Tax Brackets.

15% Bracket $0 – $17,000 $0 – $8,500
15% Bracket $17,001 – $69,000 $8,501 – $34,500
28% Bracket $69,001 – $139,350 $34,501 – $83,600
31% Bracket $139,351 – $212,300 $83,601 – $174,400
36% Bracket $212,301 – $379,150 $174,401 – $379,150
39.6% Bracket Over $379,150 Over $379,150

So why doesn’t it matter what your Income Tax Bracket is?

Because of various employment taxes, which are not accounted for, the Income Tax Brackets do not do an adequate job of estimating taxes for quarterly estimated payments For that, it is best to use form 1040-ES, or calculate a reasonable year-end tax.

In truth, however, whether the top bracket is 39.6% or it is 36%, the effective tax rates are almost completely disconnected from these brackets. This is because:

1. These brackets give no accommodation to the fact that high-income taxpayers do not pay these rates because they are subject to the Alternative Minimum Tax. Therefore, these tax brackets become totally irrelevant to these individuals.

2. These income brackets assume that you have 100% ordinary income. Long-term capital gains, dividends and passive income ore other types of income and they are taxed at a much lower rate but not accounted for in these rates. And, certain income, like tax-free municipal bonds are, tax free.

3. The tax brackets are only for income tax. Taxpayers pay all other taxes to the IRS on Form 1040. Medicare, Social Security, FICA, and employment taxes are all taxed at a flat tax rate! At one point in 2011, the total of employer and employee share was 15.9% (this amount has been reduced, at least temporarily for 2011, thanks to the bipartisan Payroll Tax Cut). And believe it or not, more than half of all taxes collected from individuals in 2010 by the IRS were employment (or self-employment) taxes!

There are so many games Congress can play when creating the overall effective tax rate which is traditionally is around 21% of GDP. Credits, deductions and the Alternative Minimum Tax have a far bigger impact on what taxpayers actually pay than these income tax brackets.

For more on income tax brackets, visit the tax brackets category.

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Those new to their careers may look at the Income Tax Brackets 2011 and declare “Good Grief! I am in the 25 percent tax bracket! The government is robbing me blind!” But, what does it all mean? Is the government taking 25 percent of all your income in taxes? If you have a copy of the 2011 1040 Form that you can follow along with, you will better understand what comes next.

First, we need to determine what is taxable income. The beginning point is found on the first page of your 1040 Form. There are seventeen categories of income starting with wages, salaries and tips and ending with other income. However, not all income is considered income. For example not all Social Security is taxable. Also, adjustments to income are deductions are not shown on Schedule A. Some of these include educator expenses, student loan interest deductions and alimony. When we apply these adjustments to the income, we arrive at Adjusted Gross Income which is shown on lines 37 and 38 of the form.

Next, we have to take exemptions for you and your spouse. Then we have to account for itemized deductions which are found either on Schedule A or the Standard Deduction found on page 2 of the 1040. The greater of these two are taken. Finally, we have to take further deductions for your exemptions which include any dependent children. Then, we can determine your taxable income which is found on line 43.

Federal Income Tax is progressive in nature; as our income increases so does the tax rate. So the Income Tax Brackets for 2011 have  six tax brackets: 10,15,25,28 and 33 percent. Adding to the confusion is that these tax brackets vary by status. The break points (or when you shift to a higher bracket) are different for single, married filing jointly, married filing separately, head of households and estates. The break points for married filing jointly are $16,760, $68,000, $137,300, $209, 250 and $373, 650.

For example, Taxpayer A has $20,000 in taxable income. The tax bracket formula says that he pays $1,675 or 10 percent of $16, 750 plus 15 percent of the excess of the amount over $16, 750. Doing the math yields $1,675 + $489 or $2,163. Note that if we decide the $2,163 tax by the $$20,000 in taxable income, the overall tax rate is 10.8 percent.

What about Taxpayer B, who is in the 25 percent bracket? He got there by having taxable income of $100,000. His formula is $9,353 plus 25 percent of the excess over $68,000. Again, doing the math yields $9,353 + $8,000 or $17, 353. Ouch! If we divide the $17,353 tax by $100,000 in taxable income, the overall tax rate is 17.35. Of course, however, none of this takes into account the other income taxes like state income taxes.

There is more to this (like how do reduce tax liabilities) but that is a subject of another discussion.

For more on tax brackets, visit the tax brackets category.

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The six different federal income tax brackets are 10%, 15%, 25%, 28%, 33%, and 35%.  Which bracket you fall in depends not just on your income, but on your filing status as well. The four different filing statuses are single, head-of-household, married separate, and married joint.

With that warning, below are the Federal Income Tax Brackets 2011.

Single

Married, Joint

Married, Separate

Head of Household

But these tax brackets might not end up applying. If the IRS feels a taxpayer has reduced his or her income tax too much based on total income, the IRS is allowed by law to assess an Alternative Minimum Tax, or AMT for short. The AMT is imposed at a nearly flat rate on an adjusted amount of taxable income above a certain threshold (exemption). This exemption is substantially higher than the exemption from regular income tax. Regular taxable income is adjusted for certain items and computed differently for AMT, such as depreciation and medical expenses. No deduction is allowed for state income taxes or miscellaneous itemized deductions in computing AMT income. Taxpayers with incomes above the exemption rate, whose regular Federal Income Tax is below the amount of AMT, must pay the higher AMT amount.

There are also separate AMT tax brackets:

The AMT has most likely outlived its useful life. It was first passed in 1969, but due to years of reform and reconciliation, the tax code has changed dramatically. Tax shelters that were available then are no longer available today, and have not been for awhile.

The AMT is particularly punitive to high income earners in high tax jurisdictions. Not only do they have to pay high local and state taxes, but the IRS does not allow the full deduction simply because they make a lot of money. Therefore, they wind up paying more in federal taxes as well.

For more on federal income tax brackets, visit the tax brackets category.

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We are told that the Roman Empire fell because Emperor Nero was busy fiddling with his fiddle…or something like that. But the truth is, Rome collapsed several centuries later. The reason? Well to at least one historian: taxation.

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The very first income tax brackets in the United States were established in 1861 to fund the Civil War. These federal tax brackets were painlessly simple- zero percent for income up to $800.00, and three percent for any income over $800.00. My how things have changed.

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What are income tax brackets? And why should we care? 

Income tax brackets are the divisions at which tax rates change in a progressive tax system.  Essentially, they are the cutoff values for taxable income, or income that is past a certain point causing it to be taxed at a higher rate.

This is rather confusing, so let’s use an example.

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How much will you owe the IRS?

Don’t use your Federal Income Tax Brackets 2011 as a guide. The only way to figure out your tax bill is to prepare your tax form. Why? Well a big reason is that tax brackets assume all income is ordinary; that is income from wages, self-employment or short-term capital gain.  Dividends and long-term capital gains are taxed at lower rates and certain types of income, like Muni-bonds, are tax free.

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Nearly every taxpayer focuses on  their particular 2011 tax brackets. But the truth is, the income tax rates (which set tax brackets) only accounts for half of taxes collected by the IRS! It’s true. In 2010, the IRS collected a net $814 billion dollars in income tax. Yet, American paid more than double that to the IRS. What gives?

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There are two basic types of IRS Tax Brackets 2011. The personal income tax, levied on incomes of households and unincorporated businesses, and the corporate (or corporation) income tax, levied on net earnings of corporations. As income increases for both the individual and business, so does the tax rate. This is known as “progressive” income taxation.

Individual IRS Tax Brackets 2011
Under present tax law, there are six tax brackets for individual taxpayers: 10%, 15%, 25%, 28%, 33%, and 35%. The level of taxable income for each IRS tax Bracket 2011 bracket differs according to filing status (such as married filing jointly, singles, or heads of household) and is revised slightly every year.

Long-term capital gains receive preferential tax treatment both for individuals and corporations. Assets held for more than 12 months are taxed at a top rate of 15%, versus a top rate of 35% for short-term gains on assets held for 12 months or less. Because capital gains rates reward taxpayers in a position to take risks, and because loopholes and tax shelters enable the wealthiest corporations and individuals to escape the higher tax brackets, the progressiveness of the tax system has often been more theoretical than real. That is, those with more means, in theory are supposed to pay more in taxes, while those with less pay less. In practice, at least in my opinion, the tax code always have favored the hyper-wealthy who can take advantage of unique structuring, while punishing those who are attempting to create wealth.

With these warnings, here are the four tax rate schedules of income tax brackets for 2011.

• Tax-Bracket-Single
• Tax-Bracket-Married-Joint (or qualifying widower)
• Tax-Bracket-Married-Separate
• Tax-Bracket-Head-of-Household

For corporations, IRS Tax Brackets 2011

It is important to note that not business pay corporate tax, the shareholders also pay income tax on dividends they receive. Albeit at a lower, rate, at 15% but there is still very little dispute that this creates double-taxation. For instance, a shareholder of a company that earns over $20 million dollars. Well the company had to pay 35% of its profits to the US Treasury. Now when the Company pays dividends, the shareholder a to pay 15%T to the US Treasury as well. A total tax rate of 50%. Numerous techniques have developed over the years to avoid this double taxation. For instance election as a Subchapter S corp allows for single, pass-through taxation.

The impact of legislation on the effective tax rate.

The other big changes of the tax code which have raised and lowed income tax brackets while redcuing and increasing credits and dedcutions.

The Energy Tax Incentives Act of 2005

The Working Families Tax Relief Act of 2004

The Jobs and Growth Tax Relief Reconciliation Act of 2003

The Military Family Tax Relief Act of 2003

The  Economic Growth and Tax Relief Reconciliation Act of 2001

The Internal Revenue Service Restructuring and Reform Act of 1998

The Taxpayer Relief Act of 1997 The  Revenue Reconciliation Act of 1993

The Tax Reform Act of 1986

Tax Reform Act of 1984

The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA);

The Economic Recovery Tax Act of 1981 (ERTA)

The Tax Reform Act of 1976

So with all these charges…guess what. Regardinless of the income tax brackets…The revenues the IRS collects has been right around 21% of Gross Domestic Product.

For more on tax brackets, visit the tax brackets category.

Did you like this article? Check out the Strangest State Tax Write-Offs.

Free Tax Reports available at our home page. Request yours today.

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