Rate schedule (federal income tax)
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A rate schedule is a chart that helps United States taxpayers determine their federal income tax burden for a particular year.[1][2] Another name for “rate schedule” is “rate table.”[3]
Origin
The origin of the current rate schedules is the Internal Revenue Code of 1986 (IRC),[4][2] which "is the official name for Title 26 of the United States Code."[5] With that law, the U.S. Congress created four types of rate tables, all of which are based on a taxpayer’s filing status (e.g., “married individuals filing joint returns,” “heads of households").[6][2][7]
Each year the United States Internal Revenue Service (IRS) updates rate schedules in accordance with guidelines that Congress established in the IRC.[8][9] In general, the IRS bases such adjustments on inflation and cost of living increases in the previous year.[10]
Format
All rate schedules have an identical format, containing four columns and six rows (called “brackets”).[2] The first two columns indicate the range of taxable income that a taxpayer must have to qualify for a particular tax rate. The third column indicates the tax rate itself.[2] The fourth column gives the range of income to which the current marginal rate applies.
Given that Congress has prescribed a system of progressive taxation, all but the lowest-earning taxpayers pay distinct rates for different parts of their income.[11]
The following are the IRS rate schedules for 2011[12]:
Schedule X — Single
| If taxable income is over-- | But not over-- | The tax is: | of the amount over-- |
|---|---|---|---|
| $0 | $8,500 | 10% | $0 |
| $8,500 | $34,500 | $850.00 + 15% | $8,500 |
| $34,500 | $83,600 | $4,750.00 + 25% | $34,500 |
| $83,600 | $174,400 | $17,025.00 + 28% | $83,600 |
| $174,400 | $379,150 | $42,449.00 + 33% | $174,400 |
| $379,150 | $110,016.50 + 35% | $379,150 |
Schedule Y-1 — Married filing Jointly or Qualifying Widow(er)
| If taxable income is over-- | But not over-- | The tax is: | of the amount over-- |
|---|---|---|---|
| $0 | $17,000 | 10% | $0 |
| $17,000 | $69,000 | $1,670.00 + 15% | $17,000 |
| $69,000 | $139,350 | $9,350.00 + 25% | $69,000 |
| $139,350 | $212,300 | $26,637.50 + 28% | $139,350 |
| $212,300 | $379,150 | $46,741.50 + 33% | $212,300 |
| $379,150 | $100,894.50 + 35% | $379,150 |
Schedule Y-2 — Married Filing Separately
| If taxable income is over-- | But not over-- | The tax is: | of the amount over-- |
|---|---|---|---|
| $0 | $8,500 | 10% | $0 |
| $8,500 | $34,500 | $850.00 + 15% | $8,500 |
| $34,500 | $69,675 | $4,750.00 + 25% | $34,500 |
| $69,675 | $106,150 | $13,543.75 + 28% | $69,675 |
| $106,150 | $189,575 | $23,756.75 + 33% | $106,150 |
| $189,575 | 51,287.00 + 35% | $189,575 |
Schedule Z — Head of Household
| If taxable income is over-- | But not over-- | The tax is: | of the amount over-- |
|---|---|---|---|
| $0 | $12,150 | 10% | $0 |
| $12,150 | $46,250 | $1,215.00 + 15% | $12,150 |
| $46,250 | $119,400 | $6,330.00 + 25% | $46,250 |
| $119,400 | $193,350 | $24,617.50 + 28% | $119,400 |
| $193,350 | $379,150 | $45,323.50 + 33% | $193,350 |
| $379,150 | $106,637.50 + 35% | $379,150 |
Caution: These tables shown above are accurate for 2011 only and do not apply for any other year.
Use of Rate Schedules
To use a rate schedule, a taxpayer must know their filing status and amount of taxable income.[13] Definitions related to one’s filing status can be found in IRC § A.2(a-b), and general guidelines regarding taxable income are described in IRC § A.63(a-b).[14] Once a taxpayer has made these determinations, he (1) references the pertinent rate schedule, (2) finds the appropriate bracket (based on her taxable income), and (3) uses the formula described in the third column to determine his federal income tax.
Assume, for example, that Taxpayer A is single and has a taxable income of $175,000 in 2011. The following steps apply the procedure outlined above:
(1) Because he is single, the pertinent rate table is Schedule X.[2]
(2) Given that his income falls between $174,400 and $379,150, he uses the fifth bracket in Schedule X.[2]
(3) His federal income tax will be “$42,449.00 plus 33% of the amount over 174,400.”[2] Applying this formula to Taxpayer A, one arrives at the following result:
$42,449.00 + (0.33 * ($175,000 - $174,400)) =
$42,449.00 + (0.33 * $600) =
$42,449.00 + $198.00 = $42,647.00.
Accordingly, Taxpayer A must pay $42,647.00 in federal income taxes for 2011.
References
- ^ Samuel A. Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials, 2nd Edition (St. Paul: Thomson/West, 2007), 8-9.
- ^ a b c d e f g h Internal Revenue Service, United States Department of the Treasury, "2007 Federal Tax Rate Schedules," http://www.irs.gov/formspubs/article/0,,id=164272,00.html.
- ^ Samuel A. Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials, 2nd Edition (St. Paul: Thomson/West, 2007), 8-9.
- ^ Samuel A. Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials, 2nd Edition (St. Paul: Thomson/West, 2007), 2.
- ^ Samuel A. Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials, 2nd Edition (St. Paul: Thomson/West, 2007), 2; 26 U.S.C.
- ^ 26 U.S.C. § A.1(a-e)
- ^ Samuel A. Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials, 2nd Edition (St. Paul: Thomson/West, 2007), 5-9.
- ^ 26 U.S.C. § A.1(f)
- ^ Samuel A. Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials, 2nd Edition (St. Paul: Thomson/West, 2007), 8-9 (citing Revenue Procedure 2006-53, 2006-48 I.R.B. 996).
- ^ 26 U.S.C. § A.1(f).
- ^ Samuel A. Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials, 2nd Edition (St. Paul: Thomson/West, 2007), 10; Internal Revenue Service, United States Department of the Treasury, "2007 Federal Tax Rate Schedules," http://www.irs.gov/formspubs/article/0,,id=164272,00.html.
- ^ Internal Revenue Service, Form 1040-ES, Estimated tax for individuals, page 6
- ^ Samuel A. Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials, 2nd Edition (St. Paul: Thomson/West, 2007), 5; Internal Revenue Service, United States Department of the Treasury, "2007 Federal Tax Rate Schedules," http://www.irs.gov/formspubs/article/0,,id=164272,00.html.
- ^ 26 U.S.C. §§ A.2(a-b), 63(a-b); Samuel A. Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials, 2nd Edition (St. Paul: Thomson/West, 2007), 5-6, 26-27.