Basic question about the American income tax syste - m

Post by **GORDON** » Sat Dec 19, 2009 8:27 am

Dumb question, but here it is:

American income tax is graduated based on income. The more you make, the higher percentage you pay.

Does this mean, for example, that if tax thresholds are to pay 10% below $60k, and 15% $60k+, then you only pay 10$ up to $60k, and 15% on money made after $60k?

I always thought a person making $70k would pay the 15% on the entire amount, period. Someone is telling me otherwise.

Edited By GORDON on 1261229318

Post by **TPRJones** » Sat Dec 19, 2009 9:01 am

That sounds right to me.

That's why income tax booklets come with tables. If it were just 10% of the total it would be simpler and no tables would be needed.

Post by **GORDON** » Sat Dec 19, 2009 9:08 am

Then why do people scramble at the end of the year to give to charity, and sneak under a line, if just a tiny bit of income above that line is affected?

Post by **TheCatt** » Sat Dec 19, 2009 11:51 am

Base income tax is in steps, like you describe.
First X of income is taxed at 10%.
From X to Y is taxed at 15%
From Y to Z is taxed at 20%
etc...

The only reason to sneak under lines is due to phase-outs and other issues. Because of the complexity of the code, and the number of phase-outs and such, your taxable income can dramatically change the effective tax rates of a given amount of money.

Phase outs

Post by **TheCatt** » Sat Dec 19, 2009 11:53 am

There's all sorts of stuff like education credits, Roth IRA/IRA qualifications, etc. A few years ago, if we had reduced our income by about $1k, we would have been eligible to deduct a few $k of education expenses, but didn't know it until too late. So, by moving charitable deductions from one year to another, we could have saved a lot of money.

Crap like this is why Mommy D gets work.