Well…There’s this guy on another board who tells me that when you change tax brackets in the US, your tax is calculated by applying the new rate to all of your income. Not sure I’m clear here, so I’m going to give a simplified example :
Say the tax brackets are :
10% up to 20 000
20% above 20 000
So, if your income is 20 000 you pay 10% of 20 000 =2000$
And if you get a little raise and your new income is 21 000 , according to him, you'd pay 20% of 21 000 = 4 200 (so you’d have to pay 2200$ more in income tax for a raise of 1000 ).
This seems extremely illogical and highly implausible to me. For the record, with the same example, here, you would still pay 10% of your income up to 20 000 and the 20% rate would apply only to the part of your income above 20 000 (in this example 10% of 20 000 + 20% of 1000 = 2200 )
However, the guy keeps saying that changing brackets in the US is a real concern and that you can have to pay more in taxes than you gain in income when you change brackets.
So, is he off base (I somewhat suspect it, since I already meet people here who believed the same thing, though it isn’t true at all…I guess they don’t pay taxes very often) or is he right?
It’s called a graduated system. In your example, you would pay 10% for every dollar up to $20,000 and then 20% on every dollar between $10,000 and $20,000.
If your income was $20,000, you would pay $2000.
If your income was $21,000, you would pat $2000+$200=$2200.
Does this guy even PAY taxes? One look at the tax tables will answer this question, and prove him wrong. It’s all a gradual rise, in fact it’s very hard to tell where the tax brackets are by looking at the tables.
I don’t think there is a simple answer, as you can see in the table link above. Two people making the same amount could pay very different amounts of taxes based on their status, like Single versus Married Filing Jointly. In addition, self-employed pay a different total rate, but this is more than you want to know.
The big “tax bracket” concern is when you go from income of say $20,000 to income of $135,000, overnight. You feel like you’re giving out more than you should, and percentage-wise, you are.
But still, if you earn 10000 dollars up unitl December the first, and then earn a million dollars on December the second, the first ten thousand dollars gets taxed at the same rate, for you, as it was before you got rich. The million gets taxed at the higer rate.
Being a Rich American is a great deal, it should be expensive.
Triskadecamus, regular, non-self-employed tax filers usually file calendar year returns, and their tax liability is based on their total income. For estimated tax purposes (for people who are usually not regular wage employees, and we’re not going to mention investment income), yes, there would be a different rate of liability that can be documented. I disagree with the rich American statement. Some people actually help others with their millionaire status. I personally would like a flat tax rate.