If I make $80k/yr and my take home pay each month is $4400, that means in a years time I make $52800 take home. That number is just 66% of $80k which means that I am paying 33% tax?

How on earth is this my tax bracket? Don't millionaires pay less than that?

According to this http://www.bankrate.com/finance/taxes/tax-brackets.aspx I am only supposed to be paying 25%.

Where am I wrong?

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    1) The table you linked is only for federal taxes, you also pay state, social security, and medicare. 2) make sure you add any "tax refund" money back into your take home amount – VBCPP Apr 11 '15 at 3:10
  • I don't even get any refund. I did some side work this year and actually had to pay $1200! – user1477388 Apr 11 '15 at 12:00
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    The millionaires comment is apples to oranges. Income taxes are based on what you earn, not what you have. – JohnFx Apr 11 '15 at 14:56
  • @JohnFx actually referring to capital gains. – user1477388 Apr 11 '15 at 21:56
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    @JohnFx I don't think that's correct. The US long term capitol gains tax is only 20% in the 39.6% bracket, 15% for the 25-35% bracket, and 0% for the 10-15% bracket. In each case it's lower than the corresponding tax rate on wages. – Charles E. Grant Apr 13 '15 at 21:56

Yes, your tax bracket is 25%. However, that doesn't mean that your take home pay will be 75% of your salary. There is much more that goes into figuring out what your take home pay will be.

First, you have payroll taxes. This is often listed on your pay stub as "FICA." The Social Security portion of this tax is 6.2% on the first $118,500 of your pay and the Medicare portion is another 1.45% on the first $200,000. (Your employer also has to pay additional tax that does not appear on your stub.) So 7.65% of your salary gets removed off the top.

In addition to the federal income taxes that get withheld, you may also have state income taxes that get withheld. The amount varies with each state.

Also, the 25% tax bracket does not mean that your tax is 25% of your entire salary. You step through the tax brackets as your income goes up. So part of your salary is taxed at 10%, part at 15%, and the remainder is at 25%.

The amount of federal income tax that is withheld from your paycheck is really a rough estimate of how much tax you actually owe. There are lots of things that can reduce your tax liability (personal exemptions, deductions, credits) or increase your tax (investment income, penalties). When you do your tax return, you calculate the actual tax that you owe, and you either get a refund if too much was taken out of your check, or you need to send more money in if too little was taken out.

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    And, yes, for a professional having the withholding add up. 33% of your wages is pretty typical. The wealthy benefit from having most of their income from investments, which are taxed at a lower rate, and do a considerable amount of work (or pay people to do it for them) to manage when and how they are taxed, and take full advantage of tax-advantaged investments and the ike. Note that these days having a million dollars (the traditional definition of a millionaire) does not qualify as wealthy; having a yearly income of a million dollars probably does.does. – keshlam Apr 11 '15 at 5:27
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    Also, OP listed their total salary and take home pay. There is a lot more that comes out of your paycheck than taxes. Health insurance premiums, 401k contributions, etc. I think that OP might be lumping this all into taxes in his mind. – JohnFx Apr 13 '15 at 0:17
  • @JeremyStein There isn't really a 0% tax bracket. If you make a low enough income, your federal tax is zero, but only because your exemptions and deductions reduce your effective income to zero. If after your deductions your income for the year is $100, you'll owe $10 tax. – Ben Miller - Remember Monica Apr 14 '15 at 2:55

I suggest taking a look at your pay stub or pay statement. Your employer should provide you with one for each time you get paid. This shows your gross income (pay period and year to date or YTD for short) and all stuff that gets deducted and how your actual payment is calculated. In my case there are nine things that get taken off:

  1. Federal Income Tax
  2. Social Security Tax
  3. Medicare Tax
  4. State Income Tax
  5. Dental insurance
  6. Flex Medical Spending account
  7. Health Insurance
  8. Vision health insurance (eye doctor, glasses)
  9. Contribution to a retirement plan

Other things that might show up there are various life or accident insurances, Child Care flexible spending account, legal & pet insurances, long term disability, etc.

Some of those are under your control (through benefit election or contribution choices), others you just have to live with. Still, it's worth spending the time to look at it occasionally.

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