Anyone else think taxes are crazy?

Question

Federal tax rates for 2008 are

$0 - 8,025 10%

$8.025 - 32,550 15%

$32,550 - 78,850 25%

$78,850 - 164,550 28%

$164,550 - 357,700 33%

$357,700 - above 35%

(based on http://www.moneychimp.com/features/tax_brackets.htm)

This means if you make $15.65/hr and work 40hrs a week. Your federal taxes will be about $4882.50 at the end of the year. You get to keep about $27667.50 of your money.

But if you get a 10 cent raise. That means you'll make $32,758 gross, and you'll move up in the tax bracket. This will make your tax payment $8189.5 allowing you to only keeping $24,568.50 for the year. That's $3099 less than the year prior.

As a matter of fact you will need to make a gross of $37,000 just to match what you made in the year you made $32,550.

Does anyone else think this is messed up?

Answer 1

that is not how the tax table works.

study it a little closer.  

you'll get it.

Answer 2

Yes, it's messed up - and YOU are the one who is confused on how the tax calculation and tax brackets work.  If you go into a higher bracket, only the amount of your earnings that is over the bracket limit is taxed at the higher rate.  So your statements on how much tax would be owed aren't even close to correct.

Many people make this same mistake and don't understand how taxes are calculated, and think that going just into the next bracket will make them LOSE money.  That's not how it works..

Answer 3

You are still wrong.  First, not all income is taxed at all.  You get various adjustments, exemptions and deductions.  The amount that you make after subtracting the adjustments, exemptions, and deductions, is your taxable income.  Second, going by the numbers that you gave for tax rates, if your taxable income (which is less than what you make) is $35,000, then $8,025 is taxed at 10%, $24,525 is taxed at 15%, and $2450 will be taxed at 25%.

Answer 4

If you work 2080 hours at $15.65 per hour, are single with one exemption and claim the standard deduction, you tax liability will be $3,139 before withholding credit.  The next $8,948 in income would be taxed at 15%.  If you went over that additional dollars would be taxed at 25%.  That will probably cover whatever you can expect to earn. If you are married of claim children, the amounts will drop.

Answer 5

Federal income taxes may be crazy, but it beats a nationwide bake sale.

You have a personal deduction and exemption amount, after this is minused, you determine the tax rate. And it is 15% of the amount OVER $8000, the first $8000 of taxable income is taxed at 10%

You will be keeping the .10/hr increase, minus the marginal rate of .25 (probably will really be 15%) and the FICA tax, which you would pay anyway. So, you keep about 0.07 or the 0.10 increase, minus .00765 cents.  

Answer 6

You do not understand the tax rates shown.  I'm constantly amazed how many people don't understand this, but you cannot EVER have less money after earning more.  It just doesn't work that way.

I haven't checked the exact numbers you show, but those are MARGINAL tax rates.  That means each of those brackets only applies to your extra income.

Using your quoted figures, from 0 to 8025 is taxed at 10%.  Then, anything above that, to 32550, is taxed at the 15% rate.  But only the amount above $8025, not the whole $32,550.

The upshot is that, if you earn more money and enter a higher bracket, you do indeed get less of THAT money, but overall, you're still making more.