: How does income tax work (USA)? let’s say I make over 0k, the income tax in US is 37% I was just wondering, does that mean the 37% (which is 5k) is just lost? So a person would give almost half their income to the

Vote Up Vote Down   0 Reactions

Login to give Reaction!

The US has a progressive tax system where as your income increases, the amount of tax on that additional income increases. It does not mean that you pay your highest Federal income tax rate on everything that you make.

For an individual, the brackets are:

10% Up to ,525
12% ,526 to ,700
22% 38,701 to ,500
24% ,501 to 7,500
32% 7,501 to 0,000
35% 0,001 to 0,000
37% over 0,000

For someone with a taxable income of K, the tax rate would be 10% on the first ,525 and then 12% on the rest. I leave it to you to calculate the tax due on 5k.

Vote Up Vote Down   0 Reactions

Login to give Reaction!

It's important to know that not all income is taxed in the US, there are a host of deductions that can reduce taxable income. At the minimum most individuals would benefit from the standard deduction of k (or k if married filing jointly). If someone earns 0k and donates 0k to charity, they don't pay income tax on 0k of income, they pay on 0k of income because charitable contributions are deductible.

Next, as Bob already pointed out, it's a progressive tax system, so if you had 0k of taxable income you'd pay 0,689.50, which is actually 30.1% tax rate. You would however be taxed 37% on each taxable dollar over 0k.

We also have a host of tax credits, some of which are refundable, that basically count as tax dollars paid. For example if I owed k in income tax but spent k to buy solar panels for my house last year then I'd qualify for a k solar tax credit and I'd now owe [CO] income tax.

One more bit is that we have different tax rates for different types of income. We have capital gains which are taxed at different rates than ordinary income depending on how long you held the capital that you sold for gain. So if you sell stock/property for a gain it isn't necessarily taxed the same as income from your job.