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For U.S. Federal tax, do tax rate and tax table relate to each other? If yes, how are they related? If not, how do they differ?

Thanks and regards!

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The tax tables are created from the tax rates. Its not as simple as multiple taxable income by the rate for your tax bracket, due to the way tax brackets work. The rate for each tax bracket only applies for certain income ranges. For example, the first $8,375 are taxed at 10%, $8,375-$34k at 15%, $34k-$82,400 at 25%, etc..

So just because you are in the 25% tax bracket doesn't mean that you are paying 25% on your entire income. If you have 82,400 in taxable income, and assuming the singe rate, your tax is 16,788 for an effective tax rate of 20% of taxable income. Your effective tax rate is actually less than that if you base the calculation on your adjusted gross income.

Your effective tax rate is simply your total taxes divided by your total income. The tax rate and the tax table are based on your taxable income, which is your gross income minus any deductions and credits.

  • Thanks! (1) How is the one in table calculated? (2) In "your effective tax rate is actually less than that if you base the calculation on your adjusted gross income", what do "effective tax rate"and "if you base the calculation on your adjusted gross income" mean? Possibly any references for me to read? – Tim Apr 19 '11 at 13:31
  • @Tim I updated my answer with some more information on the effective tax rate. – KeithB Apr 20 '11 at 2:01
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The tax table lists the tax amount for different incomes. The table is constructed by taking the different tax rates and applying them to the appropriate income amount to get the tax amount.

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    And it is worth saying that the table amounts are often rounded off, and not usually in your favour. – Turukawa Apr 19 '11 at 11:35
  • Thanks! How is the table constructed from the tax rates? Or possibly any references for me to read? – Tim Apr 19 '11 at 13:32
  • Here is the 2010 income tax rates (en.wikipedia.org/wiki/…). Remember the upper level rates are marginal rates - you pay the marginal rate for income above the stated income. – Muro Apr 19 '11 at 15:18

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