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In the current tax system in the US, I have paid 29.5% of my income in income taxes so far this year. Some weeks have been taxed at a higher rate, around 33%. Why is this the case if I am inside of the 28% bracket?

Wouldn't it make more sense to tax someone at a constant rate and should the amount they made in a year exceed the bracket limit be subjected to a higher tax rate?

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    "Wouldn't it make more sense to tax someone at a constant rate" What, pray tell, would that constant rate be? The same for a minimum wage teen as for a top-dollar corporate lawyer? – RonJohn Nov 2 '17 at 17:22
  • What I mean is, if my projected earnings sit in a certain bracket, wouldn't it make sense to tax at that rate and should in the event that I earn more, pay that amount in taxes later? – Aszula Nov 2 '17 at 17:51
  • Too many people have too variable of a paycheck for the payroll computer to be able to know what magical rate you should be taxed at so as to make things perfect when you're filling out your tax return. – RonJohn Nov 2 '17 at 18:10
  • @RonJohn The IRS has rules for automated payroll tax witholding. Social security and medicare tax amounts are fixed, so that rate shouldn't change paycheck to paycheck. The automated rules are such that unless you make a very small amount, the percentage withheld should be constant check to check as well. – iheanyi Nov 2 '17 at 18:52
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    @iheanyi - According to the withholding tables if I have 0 exemptions and make $1,250 a week, $218 (17.4%) is withheld. If I only make $900, then $133 (14.8%) is withheld. So the percentage is not constant, even for larger amount. – D Stanley Nov 2 '17 at 19:10
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To expand on John's answer, Remember that the tax brackets are graduated, meaning that the first ~$9K of taxable income (after deductions and exemptions) for a single person is taxed at 15%, the next ~$28K is taxed at 19%, the next ~54K is taxed at 25%, and the next ~$100K is taxed at 28%, etc. So when you say you are in the 28% "bracket", that means that your annual taxable income will be somewhere between $91K and $191K. Every additional dollar you earn will be taxed at 28%.

If 28% of your income were withheld every week, they you'd have too much tax withheld, since the first $91K is taxed at lower rates. If they withheld taxes along the graduated scale, then you'd have very low withholdings at the beginning of the year, and higher withholdings at the end of the year.

Instead, the tax tables that your company uses to determine how much tax to withhold take your weekly income and extrapolate to predict what your taxable income will be for the entire year (your deductions are calculated from the number of exemptions you put on your W-4). That number is used to estimate your total tax bill for the year, then divided by 52 to determine how much tax is withheld for that week. If you earn significantly more in one week, you might have a higher percentage withheld since the extrapolation puts more of your income in the higher brackets. If your weekly pay was constant, then the percentage of tax withheld would be constant as well.

If 29-33% of your gross income is withheld, then it sounds like you have too much tax taken out, possibly because you have too few exemptions on your W-4. All that means is that you might have a large refund when you file your taxes.

  • This is a bit misleading. "They" being the employer, are not extrapolating your income. They base the percentage withheld on tables provided by the IRS. Now, those table may be based on extrapolating income to an annualized amount, but this answer provides no evidence for this. – iheanyi Nov 2 '17 at 18:57
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    @iheanyi see my edit. The tax tables do extrapolate periodic income to annual to determine tax withheld. – D Stanley Nov 2 '17 at 19:15
  • Mostly agree but nitpick: W-4 allowances map to the combination of exemptions plus excess itemized deductions (if any) on 1040. – dave_thompson_085 Nov 2 '17 at 23:51
  • Re " the first ~$9K you make (assuming single filer) is taxed at 15%", that's not true. The first ~$9K isn't taxed (other than SS/Medicare) because it's covered by personal exemption & standard deduction. – jamesqf Nov 3 '17 at 3:43
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It's calculated per pay period, and the method for calculating withholding is prescribed by IRS Publication 15-A: https://www.irs.gov/pub/irs-pdf/p15a.pdf

If your earnings go up mid-year, it makes sense to adjust withholding to account for that as it should come out pretty evenly at end of year. They can't go back and withhold more after the fact, and future earnings aren't always known, so it is best to go off what is known each pay-period. If you are consistently getting large refunds then you may want to adjust your W-4, but you don't want to owe too much, as there is risk of underpayment penalty if you owe more than $1000 and either didn't have 90% of current year tax due withheld or didn't have 100% of last years tax withheld (other exceptions apply, but those are the common ones).

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They actually are calculated annually. What you are seeing being deducted from your paycheck is withholding based on an estimate of your yearly income based on the amount in your paycheck. This is why the amount changes each week if your pay varies each pay period.

You can work with your employer to change the amount withheld, but be aware that doing so may potentially result in owing a big tax bill next April if you wind up owing more than you had withheld.

  • This is wrong. IRS rules for withholding are based on the amount you're paid at a given check, not an estimate of your yearly income. – iheanyi Nov 2 '17 at 18:54
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    @iheanyi They're based on more than the amount you're paid at a given check. As just one example, withholding for amounts paid as bonuses are based on previous salary and bonus payments received and on previous withholding amounts per Revenue Ruling 2008-29. – David Schwartz Nov 2 '17 at 20:32
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    @iheanyi I suppose I worded that badly. It is based on a formula provided by the IRS which extrapolates based on the current paycheck. – JohnFx Nov 2 '17 at 22:14

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