Understanding the tax calculation based on brackets
Have been in the US for some time, but never had time to understand how taxes are calculated. Now that I am locked at home, I think it is a good time to learn it. Can anyone please take a look at my calculations and tell whether I understood the concept correctly.
For simplicity let's assume that husband and a wife are bringing home 500k per year and filing under Married filing jointly condition.
Based on this federal tax bracket for 2019, per my understanding this family will pay ~ 125385$ in Federal taxes because of:
19400 * 0.1 = 1940
( 78950 - 19401) * 0.12 ~= 7146
(168400 - 78951) * 0.22 ~= 19679
(321450 - 168401) * 0.24 ~= 36732
(408200 - 321451) * 0.32 ~= 27759
(500000 - 408201) * 0.35 ~= 32129
Now if this family lives in CA, based on this bracket (again, married filing jointly) they will pay ~40835$ because of the similar calculations:
17618 * 0.01 ~= 176
( 41766 - 17618) * 0.02 ~= 483
( 65920 - 41766) * 0.04 ~= 966
( 91506 - 65920) * 0.06 ~= 1535
(115648 - 91506) * 0.08 ~= 1931
(500000 - 115648) * 0.093 ~= 35744
If this family lives in WA, they do not need to pay state tax and if they live in IL they will pay 500000 * 0.0495 = 24750 due to the flat tax rate of 4.95%.
Is my calculation correct?
If it is, just for a future self a python code to quickly see the results.
(1)1 Comments
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Your calculation for federal tax brackets is roughly correct.
One explicit error is that you've got an extra dollar in your subtraction from each of the brackets. It should be (78950 - 19400) * 0.12 and so on. The second problem is that you've ignored the standard deduction. For married, filing jointly it's ,400 in 2019 - so you'd only pay taxes on 5,600.
And you've also ignored social security and medicare taxes deducted from your paycheck.
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