Finding your tax bracket is actually not as complicated as many people seem to think. All you have to do is determine taxable income for the year for which you are filing. Then find that number in the relevant tax rate schedule and you have your total owed taxes. Often times, if you file electronically or use tax software to prepare a return, information regarding your tax bracket will be more readily & easily available.
If one is unsure of their taxable income, all you have to do is find your old tax return or start with this year’s tax bracket. There will be a section that clearly lists your taxable income. You can also estimate your future taxable income by making adjustments to the previous year’s income. These adjustments should be contingent upon any increases or decreases in deductions or incomes, or upon a change in filing status. Of course, unforseen events may happen in any given year, but having a good estimate is often useful.
Tax rate schedules are also important. This schedule will provide information about the tax rate as related to the percentage of your taxable income.
Obtain tax rate schedules by looking at the instructions provided with Form 1040 and 1040ES. These schedules are not found in the instruction sections of Form 1040A or 1040EZ, so if you use these tax forms, check with their tax preparer or with the IRS to determine the appropriate rate schedule.
Tax rates are established by Congress and are based on one’s level of taxable income. A general rule of thumb is that the higher one’s income is, the higher the tax rate will be (assuming the same level of deductions). A tax bracket, then, is simply the range of income that you fall into. Your tax bracket is not determined entirely by the salary you earn. It is also important to note that you cannot determine your bracket solely by examining the withholding rate on your paystub. The different marginal rates applied throughout the year can make just looking at your paystub confusing and a bit misleading in finding your exact tax bracket.
Educating yourself about taxes and tax brackets is extremely important. Even if you pay to have a professional take care of your taxes you need to understand the different tax brackets as certain actions you take during the year could push you into a higher effective tax bracket and dramatically impact how much taxes you owe to the IRS.