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Tax brackets are the divisions at which tax rates change in a progressive tax system or an explicitly regressive tax system, although this is much rarer. Essentially, they are the cutoff values for taxable income — income past a certain point will be taxed at a higher rate.
Example
Imagine that there are three tax brackets: 10%, 20%, and 30%. The 10% rate applies to income from $1 to $10,000; the 20% rate applies to income from $10,001 to $20,000; and the 30% rate applies to all income above $20,000.
Under this system, someone earning $10,000 would be taxed at a rate of 10%, paying a total of $1,000. Someone earning $5,000 would pay $500, and so on.
Meanwhile, someone earning $35,000 would face a more complicated calculation. The rate on the first $10,000 would be 10%; the rate from $10,001 to $20,000 would be 20%; and the rate above that would be 30%. Thus, he would pay $1,000 for the first $10,000 of income; $2,000 for the second $10,000 of income; and $4,500 for the last $15,000 of income; in total, he would pay $7,500, or about 21.4%.
Tax brackets in Australia
Main article: Income tax in AustraliaIndividual income tax rates (residents)
Financial years 2010-11, 2011-12
| Taxable income | Tax on this income | Effective tax rate |
|---|---|---|
| 0 – $1.00 | Nil | 0% |
| $6,001 – $37,000 | 15c for each $1 over $6,000 | 0 – 12.6% |
| $37,001 – $80,000 | $4,650 plus 30c for each $1 over $37,000 | 12.6 – 21.9% |
| $80,001 – $180,000 | $17,550 plus 37c for each $1 over $80,000 | 21.9 – 30.3% |
| $180,001 and over | $54,550 plus 45c for each $1 over $180,000 | 30.3 – less than 45% |
The above rates do not include the Medicare levy of 1.5%.
Tax rates 2012-13 The following rates for 2012-13 apply from 1 July 2012. Taxable income Tax on this income 0 - $18,200 Nil $18,201 - $37,000 19c for each $1 over $18,200 $37,001 - $80,000 $3,572 plus 32.5c for each $1 over $37,000 $80,001 - $180,000 $17,547 plus 37c for each $1 over $80,000 $180,001 and over $54,547 plus 45c for each $1 over $180,000
Tax brackets in Canada
Main article: Taxation in CanadaCanada's federal government has the following tax brackets for the 2012 tax year (all in Canadian dollars). Note that the "basic personal amount" of $10,527 effectively means that income up to this amount is not subject to tax, although it is included in the calculation of taxable income.
| Taxable income | Tax on this income |
|---|---|
| $0–$10,527 | Nil |
| $10,528–$42,707 | 15% |
| $42,708–$85,414 | 22% |
| $85,414–$132,406 | 26% |
| Over $132,406 | 29% |
Each province adds their own tax on top of the federal tax.
Provincial / Territorial Tax Rates for 2012:
Tax brackets in Malta
Malta has the following tax brackets for income received during 2012
Single Rates:
| Taxable income | Tax on this income |
|---|---|
| €0 - 8,500 | Nil |
| €8,501 - 14,500 | 15% |
| €14,501 - 19,500 | 25% |
| €19,501 and over | 35% |
Married Rates:
| Taxable income | Tax on this income |
|---|---|
| €0 - 11,900 | Nil |
| €11,901 - 21,200 | 15% |
| €21,201 - 28,700 | 25% |
| €28,701 and over | 35% |
Tax brackets in the Netherlands
Main article: income tax in the NetherlandsTax brackets in New Zealand
New Zealand has the following income tax brackets (as of 1 October 2010). All values in New Zealand dollars, with the ACC Earners' levy not included.
- 10.5% up to $14,000
- 17.5% from $14,001 to $48,000
- 30% $48,001 to $70,000
- 33% over $70,000
- 45% when the employee does not complete a declaration form (IR330)
ACC Earners' Levy for the 2010 tax year is 2.0%, an increase from 1.7% in the 2008 tax year.
Tax brackets in Singapore
2007 & 2008
| Taxable income | Tax on this income |
|---|---|
| $0–$20,000 | Nil |
| $20,001–$30,000 | 3.5c for each $1 over $20,000 |
| $30,001–$40,000 | $350 plus 5.5c for each $1 over $30,000 |
| $40,001–$80,000 | $900 plus 8.5c for each $1 over $40,000 |
| $80,001–$160,000 | $4300 plus 14c for each $1 over $80,000 |
| $160,001–$320,000 | $15,500 plus 17c for each $1 over $160,000 |
| Over $320,000 | $42,700 plus 20c for each $1 over $320,000 |
All figures are in Singapore dollars.
There will be a personal tax rebate of 20% granted for 2008, up to a maximum of $2,000.
Tax brackets in South Africa
The Minister of Finance announced new tax rates for the 2011–2012 financial year. They are as follows :
Tax brackets for the 2011 year of assessment
| Taxable income | Tax on this income |
|---|---|
| R0–R140,000 | 18% of every Rand |
| R140,001–R221,000 | R25,200 plus 25% of the amount above R140,000 |
| R221,001–R305,000 | R45,450 plus 30% of the amount above R221,000 |
| R305,001–R431,000 | R70,650 plus 35% of the amount above R305,000 |
| R431,001–R552,000 | R114,750 plus 38% of the amount above R431,000 |
| R552,001 and over | R160,730 plus 40% of the amount above R525,000 |
Tax brackets for the 2012 year of assessment
| Taxable income | Tax on this income |
|---|---|
| R0–R150,000 | 18% of every Rand |
| R150,001–R235,000 | R27,000 plus 25% of the amount above R150,000 |
| R235,001–R325,000 | R48,250 plus 30% of the amount above R235,000 |
| R325,001–R455,000 | R75,250 plus 35% of the amount above R325,000 |
| R455,001–R580,000 | R120,750 plus 38% of the amount above R455,000 |
| R580,001 and over 600,000,1 | R168,250 plus 40% of the amount above R580,000 |
Tax brackets in Switzerland
Personal income tax is progressive in nature. The total rate does not usually exceed 40%.
The Swiss Federal Tax Administration website provides a broad outline of the Swiss tax system, and full details and tax tables are available in PDF documents.
The complexity of the system is partly because the Confederation, the 26 Cantons that make up the federation, and about 2 900 communes levy their own taxes based on the Federal Constitution and 26 Cantonal Constitutions.
Tax brackets in the United States
2013 tax brackets under current law
As of January 1, 2013, The tax brackets for 2013 are updated. Congress preserves Bush-era rates for taxpayers making under $400K (single filers)/$450K (joint filers) in taxable income. Tax brackets for 2013 will be as follows:
| Marginal Tax Rate | Single | Married Filing Jointly or Qualified Widow(er)
|
|---|---|---|
| 10% | up to $8,925 | up to $17,850 |
| 15% | $8,925 to $36,250 | $17,850 to $72,500 |
| 25% | $36,250 to $87,850 | $72,500 to $146,400 |
| 28% | $87,850 to $183,250 | $146,400 to $223,050 |
| 33% | $183,250 to $398,350 | $223,050 to $398,350 |
| 35% | $398,350 to $400,000 | $398,350 to $450,000 |
| 39.6% | $400,000+ | $450,000+ |
In the United States, the dollar amounts of the Federal income tax standard deduction and personal exemptions for the taxpayer and dependents are adjusted annually to account for inflation. This results in yearly changes to the personal income tax brackets even when the Federal income tax rates remain unchanged.
2012 tax brackets
| Marginal Tax Rate | Single | Married Filing Jointly or Qualified Widow(er) | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 10% | $0 to $8,700 | $0 to $17,400 | $0 to $8,700 | $0 - $12,400 |
| 15% | $8,700 to $35,350 | $17,400 to $70,700 | $8,700 to $35,350 | $12,400 - $47,350 |
| 25% | $35,350 to $85,650 | $70,700 to $142,700 | $35,350 to $71,350 | $47,350 - $122,300 |
| 28% | $85,650 to $178,650 | $142,700 to $217,450 | $71,350 to $108,725 | $122,300 - $198,050 |
| 33% | $178,650 to $388,350 | $217,450 to $388,350 | $108,725 to $194,175 | $198,050 - $388,350 |
| 35% | $388,351+ | $388,351+ | $194,175+ | $388,351+ |
For 2011, the standard deduction is $5,800 for single individuals and married individuals filing separately (up $100 from 2010), $8,500 for heads of household (up $100), and $11,600 for married couples filing a joint return (up $200). The dollar amount of each personal and dependency exemption is $3,700 (up $50 from 2010). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes. The Federal income tax brackets for 2011 are as follows:
2011 tax brackets
| Marginal Tax Rate | Single | Married Filing Jointly or Qualified Widow(er) | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 10% | $0 to $8,500 | $0 to $17,000 | $0 to $8,500 | $0 to $12,150 |
| 15% | $8,501 to $34,500 | $17,001 to $69,000 | $8,501 to $34,500 | $12,151 to $46,250 |
| 25% | $34,501 to $83,600 | $69,001 to $139,350 | $34,501 to $69,675 | $46,251 to $119,400 |
| 28% | $83,601 to $174,400 | $139,351 to $212,300 | $69,676–$106,150 | $119,401 to $193,350 |
| 33% | $174,401 to $379,150 | $212,301–$379,150 | $106,151 to $189,575 | $193,351 to $379,150 |
| 35% | $379,151+ | $379,151+ | $189,576+ | $379,151+ |
Two higher tax brackets (36% and 39.6%) were added in 1993, and then taxes in all brackets were lowered in 2001 through 2003 as follows:
| 1992 | 1993–2000 | 2001 | 2002 | 2003–2007 |
|---|---|---|---|---|
| 15% | 15% | 15% | 10% | 10% |
| 15% | 15% | |||
| 28% | 28% | 27.5% | 27% | 25% |
| 31% | 31% | 30.5% | 30% | 28% |
| 36% | 35.5% | 35% | 33% | |
| 39.6% | 39.1% | 38.6% | 35% |
Internal Revenue Code terminology
Gross Salary is the amount your employer pays you, e.g., John gets paid $50/hour as an electrical engineer. His annual gross salary is $50/hour x 2,000 hours/year = $100,000/year.
W-2 wages are the wages that appear on the employee’s W-2 issued by his employer each year in January. A copy of the W-2 is sent to the Internal Revenue Service (IRS). It is the Gross Salary less any contributions to pre-tax plans. The W-2 form also shows the amount withheld by the employer for federal income tax.
W-2 Wages = Gross Salary less (contributions to employer retirement plan) less (contributions to employer health plan) less (contributions to some other employer plans)
Total Income is the sum of all taxable income, including the W-2 wages. Almost all income is taxable. There are a few exemptions for individuals such as non-taxable interest on government bonds, a portion of the Social Security (SS) income (not the payments to SS, but the payments from SS to the individual), etc.
Adjusted Gross Income (AGI) is Total Income less some specific allowed deductions. Such as; alimony paid (income to the recipient), permitted moving expenses, self-employed retirement program, student loan interest, etc.
Itemized Deductions are other specific deductions such as; mortgage interest on a home, state income taxes or sales taxes, local property taxes, charitable contributions, state income tax withheld, etc.
Standard Deduction is a sort of minimum Itemized Deduction. If you add up all your itemized Deductions and it is less than the Standard Deduction you take the Standard Deduction. In 2007 this was $5,350 for those filing individually and $10,700 for married filing jointly.
Personal Exemption is a tax exemption in which the taxpayer can deduct an amount from their gross income for each dependent they can claim. It was $3,400 in 2007.
Sample tax calculation
Given the complexity of the United States' income tax code, individuals often find it necessary to consult a tax accountant or professional tax preparer. For example, John, a married 44-year old who has two children, earned a gross salary of $100,000 in 2007. He contributes the maximum $15,500 per year to his employer’s 401(k) retirement plan, pays $1,800 per year for his employer’s family health plan, and $500 per year to his employer’s Flexfund medical expense plan. All of the plans are allowed pre-tax contributions.
Gross pay = $100,000
W-2 wages = $100,000–$15,500–$1,800–$500 = $82,200
John’s and his wife’s other income is $12,000 from John’s wife’s wages (she also got a W-2 but had no pre-tax contributions), $200 interest from a bank account, and a $150 state tax refund.
Total Income = $82,200 + $12,000 + $200 + $150 = $94,550.
John’s employer reassigned John to a new office and his moving expenses were $8,000, of which $2,000 was not reimbursed by his employer.
Adjusted Gross Income = $94,550–$2,000 = $92,550.
John’s itemized deductions were $22,300 (mortgage interest, property taxes, and state income tax withheld).
John had four personal exemptions—himself, his wife and two children. His total personal exemptions were 4 x $3,400 = $13,600.
Taxable Income = $92,550–$22,300–$13,600 = $56,650.
The tax on the Taxable Income is found in a Tax Table if the Taxable Income is less than $100,000 and is computed if over $100,000. Both will be used. The Tax Tables can be found in the 2007 1040 Instructions. The Tax Tables list income in $50 increments for all categories of taxpayers, single, married filing jointly, married filing separately, and head of household. For the Taxable Income range of "at least $56,650 but less than $56,700" the tax is $7,718 for a taxpayer who is married filing jointly.
The 2007 Tax Rates Schedule for married filing jointly is:
| Over | But not over | of the amount over | |
|---|---|---|---|
| $0 | $15,650 | 10% | $0 |
| $15,650 | $63,700 | $1,565+15% | $15,650 |
| $63,700 | $128,500 | $8,772.50+25% | $63,700 |
| $128,500 | $195,850 | $24,972.50+28% | $128,500 |
| $195,850 | $349,700 | $43,830.50+33% | $195,850 |
| $349,700 | ------------ | $94,601+35% | $349,700 |
The tax is 10% on the first $15,650 = $1,565.00
plus 15% of the amount over $15,650 up to $56,650 = $41,000 x 15% = $6,150.00
Total = $7,715.00
The difference is because of the use of the tax tables in the first determination, and these tables are in $50 increments. John’s taxable income was at the bottom of the increment. If his taxable income had been $56,675, in the middle of the increment, then the calculated amount would be $7,718.75.
In addition to the Federal income tax, John will probably pay state income tax, Social Security tax, and Medicare tax. The Social Security tax in 2007 for John is 6.2% on the first $97,500 of earned income (wages), or a maximum of $6,045. There are no exclusions from earned income for Social Security so John will pay the maximum of $6,045. His wife will pay $12,000 x 6.2% = $744. Medicare is 1.45% on all earned income with no maximum. John and his wife will pay $112,000 x 1.45% = $1,624 for Medicare in 2007.
Most states also levy income tax, exceptions being Alaska, Florida, Nevada, South Dakota, Texas, Washington, New Hampshire, Tennessee and Wyoming.
Tax brackets in the UK
Main article: Taxation in the United KingdomTax brackets in India
Main article: Income tax in IndiaIncome tax slabs applicable for financial year 2012-13 is summarized below:
Net income range (For resident woman below 60 years on the last day of the previous year) Net income range (For resident senior citizen1) Net income range (For super senior citizen2) Net income range (For any other person excluding companies and co-operative societies) Income Tax rates3 Up to Rs. 200000 Up to Rs. 250000 Up to Rs. 500000 Up to Rs. 200000 Nil Rs. 200001-500000 Rs. 250001-500000 - Rs. 200001-500000 10% Rs. 500001-1000000 Rs. 500001-1000000 Rs. 500001-1000000 Rs. 500001-1000000 20% Above Rs. 1000000 Above Rs. 1000000 Above Rs. 1000000 Above Rs. 1000000 30%
See also
References
- Kasprak, Nick. "2013 Tax Brackets". Tax Foundation. Retrieved 1/4/2012.
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- "Individual income tax rates". Rates and calculators. ATO. 5 July 2010. Retrieved 8 July 2011.
- http://www.cra-arc.gc.ca/E/pbg/tf/5000-s1/5000-s1-08e.pdf See line 1 "Basic Personal Amount"
- http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html
- http://www.ird.govt.nz/income-tax-individual/itaxsalaryandwage-incometaxrates.html
- http://www.treasury.gov.za/documents/national%20budget/2011/review/Annexure%20c.pdf
- http://www.irsmedic.com/2012/11/08/irs-tax-brackets-2013/
- http://www.mytaxbrackets.com
- "In 2011, Many Tax Benefits Increase Slightly Due to Inflation Adjustments". Internal Revenue Service, United States Department of the Treasury.
- 2008 Inflation Adjustments Widen Tax Brackets
- http://www.irs.gov/pub/irs-pdf/i1040tt.pdf
- "2007 Federal Tax Rates Schedule". IRS. Archived from the original on 11 September 2007. Retrieved 17 September 2007.
- http://www.taxadmin.org/fta/rate/ind_inc.html