How Much is Federal Income Tax?

Contributor, Benzinga
January 31, 2019

Figuring out how much you owe in federal income tax can be confusing at best. Federal taxes are calculated using a progressive sliding scale, which means the more money you make, the more you pay. We’ve created a comprehensive guide to help you figure out what you’ll owe when you file in April this year.

What Determines Your Federal Income Tax Rate?

The most important factor in deciding how much you’ll pay in federal income tax is (you guessed it) your income. Federal taxes are taken as a percentage of your income based on how much you made. This is after deductions. This amount can be referred to as your “taxable income.” For 2019, taxable income rates for individuals are as follows:

 Taxable Income Bracket \$0 - \$9,525 10% of total income \$9,526 - \$38,700 Pay \$952.50 and 12% of income above \$9,525 \$38,701 - \$82,500 Pay \$4,453.50 and 22% of income above \$38,700 \$82,501 - \$157,500 Pay \$14,089.50 and 24% of income above \$82,500 \$157,501 - \$200,000 Pay \$32,089.50 and 32% of income above \$157,500 \$200,001 - \$500,000 Pay \$45,689.50 and 35% of income above \$200,000 \$500,001 + Pay \$150,689.50 and 37% of income above \$500,000

Factor 2: Filing Jointly vs. Individually

There are two major ways to file your federal income taxes: individually or jointly with your spouse. The rates listed above are valid only for those filing their taxes individually. If you are married filing jointly, your taxes rates are as follows:

 Taxable Income Bracket \$0 - \$19,050 10% of total income \$0 - \$19,050 Pay \$1,905 and 12% of income above \$19,050 \$77,401 - \$165,000 Pay \$8,907 and 22% of income above \$77,400 \$165,001 - \$315,000 Pay \$28,179 and 24% of income above \$165,000 \$315,001 - \$400,000 Pay \$64,179 and 32% of income above \$315,000 \$400,001 - \$600,000 Pay \$91,379 and 35% of income above \$400,000 \$600,001 + Pay \$161,379 and 37% of income above \$500,000

Factor 3: Whether Your Income is Protected

Not all income is considered taxable. If you’ve received money as a gift or inheritance after the death of a loved one, you can exclude this money from your taxable income. Qualified scholarships, Welfare payments, child support payments, alimony payments for divorces finalized after the year 2018, and most healthcare benefits are also exempt from federal taxes. If you have any of these sources of income, you may be in a lower tax bracket than you think.

How Can I Lower How Much I Pay in Federal Income Taxes?

To lower your tax burden, you’ll need to lower the amount of taxable income that’s recorded on your account. There are two ways you can decrease the amount that you owe in taxes.

Credits

Tax credits have no effect on your tax bracket, but they can significantly lower your tax burden if used properly. Tax credits directly reduce the amount of money you owe. For example, if you owe \$10,000 in taxes and you have \$2,000 worth of tax credits, your total balance owed would now be \$8,000. If you decided to continue your education, adopt a child, send your child to daycare / a babysitter, or purchase a qualifying electricity-powered vehicle, you may qualify for a tax credit that lowers the amount that you owe in taxes.

Deductions

Unlike tax credits, tax deductions decrease your amount of taxable income recorded. Applying enough tax deductions can lower your tax bracket, allowing you to pay a smaller percentage of your income. For example, if the total amount of money you’ve made this year is \$50,000, but you claim \$20,000 in deductions, your taxable income is now only \$30,000. In this specific example, you’ll pay a whopping 10 percent less in federal income tax than you would if you hadn’t claimed any deductions. Some of the most popular deductions you can claim when filing your taxes this season include:

• Student loan interest deduction. If you paid interest on a student loan, you may deduct up to \$2,500 worth of interest from your total taxable income.
• Standard deduction. The standard deduction is one that anyone can claim if they choose not to itemize their expenses, no questions asked. For taxes due before April 15th, 2019, the standard deduction is \$12,000 for those filing individually or married couples filing separately. The standard deduction is \$24,000 for married couples filing jointly.
• State and local tax deduction. You may deduct a combined \$10,000 for dues you’ve paid to state taxes, local taxes, and property taxes in the past year.
• IRA contribution deduction. If you have a traditional IRA, you may be able to deduct a percentage of your contributions depending on whether you and your spouse have an employer-sponsored retirement account.

These are just a few of the many tax deductions you can take advantage of for the upcoming tax season. If you are a business owner or independent contractor, you may choose to itemize your deductions instead of taking the \$12,000 standard deduction to save even more. Consult with your CPA to see which deductions your unique situation qualifies you for.

How to File Your Federal Income Tax

After you’ve calculated your taxable income, you’ll need to choose whether to file by hand, work with an accountant, or use a tax prep software. If you are filing by hand, visit IRS.gov to find the necessary forms you’ll need to print and mail in. If you will be using a tax prep software, start by checking out our list comparing the best tax software programs of the year.Remember that you are required to file your federal taxes on, or before, April 15th. If you are granted an extension, you are still required to make an estimated payment by Tax Day.

Final Thoughts

The best way to save money when filing your taxes is to keep track of the expenses that you incur throughout the year. Even if you are not a small business owner or contractor, you probably have more tax-deductible expenses than you may think. From childcare costs to gifts made to registered nonprofits, churches, and charities, keep a running document detailing where your money is going. This will help make life easier during tax season and you’ll have an easier time creating and maintaining a household budget.