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2016 Federal Income Tax Brackets and Marginal Rates

Can you believe we’re already in September? The year has flown by, and IRS Tax Year 2016 will soon be coming to a close. While your filing deadline isn’t until April 17, 2017 (the 15th will fall on a Saturday), now is the perfect time to begin thinking about your taxes, maxing out your retirement contributions, and tying off of deductible expenses/donations.

So you can plan ahead, here are the IRS tax rates for your 2016 earnings, along with a little insight. Many of these have changed from last year, as they will almost always do in order to avoid a “bracket creep.” This is what happens when you get bumped up to the next tax bracket based on inflation, and not because you are actually earning more.

If you work for an employer, you’re probably very familiar with the taxes that are automatically withdrawn from your check each month. You are essentially prepaying your tax bill. Depending on how much you make before midnight on December 31, the number of exemptions you qualify for, etc., you will either owe additional money to the IRS or get a refund for overpayment. (Unless you’re a tax whiz who calculated your payments perfectly all year, of course, in which case you’re welcome to do mine, too!)

Curious how much the highest earners will pay in tax year 2016? The top marginal rate will again be 39.6 percent.

What are the 2016 marginal tax rates?

For those not well-versed in tax structure (which includes most people, I’d imagine), there’s a common misconception. Many people are afraid to earn more money because they don’t want to be bumped up into the next tax bracket. They don’t want to have all of their income taxed at an even higher rate than they’re already paying. Well, this is not actually how it works, as your effective tax rate and marginal tax rates are often very different. The only income tax applied at the highest rate, is on that income above and beyond the lower limits for that rate.

Confused? Let me explain further.

Pretent you make $50,000 this year. Or $5,000. Or even $500,000… the number is arbitrary. No matter what, your first $9,275 of earned income (if you file as a single individual, not jointly), will be taxed at the lowest tax rate: 10 percent. It doesn’t matter how many zeros are in that Income Earned box… your first $9,275 is taxed at 10 percent. This is called the “lowest tax bracket.” To determine your effective tax rate, you divide the amount of total tax owed by your entire income — if you don’t earn enough to get out of that lowest bracket, your marginal tax rate and your effective tax rate will be the same. Again, 10 percent.

This dynamic is why Warren Buffet says his secretary ‘pays more tax than he does.’ He earns a large portion of his income from investments, which are taxed at a lower percentage and therefore drop his average (effective) tax rate. As most of his secretary’s income (presumably) comes from wages, her effective tax rate is higher. I would still imagine that his actual tax bill is considerably larger than hers, however.

Let’s look at the chart:

2016 Federal Income Marginal Tax Rates and Brackets – By Filing Status.

Rate Single Filers Married Joint Filers Head of Household Filers
10% $0 to $9,275 $0 to $18,550 $0 to $13,250
15% $9,275 to $37,650 $18,550 to $75,300 $13,250 to $50,400
25% $37,650 to $91,150 $75,300 to $151,900 $50,400 to $130,150
28% $91,150 to $190,150 $151,900 to $231,450 $130,150 to $210,800
33% $190,150 to $413,350 $231,450 to $415,350 $210,800 to $413,350
35% $413,350 to $415,050 $415,350 to $466,950 $413,350 to $441,000
39.6% $415,050 and up $466,950 and up $441,000 and up

New standard deductions and personal exemptions.

As inflation affects the tax brackets, it also affects the standard deduction amounts. Married individuals filing joint returns can take a $12,600 standard deduction. That means that these filers can reduce their “total income taxed” by this amount. Heads of household have a standard deduction of $9,300. Unmarried taxpayers that don’t file as surviving spouses or heads of household can take a standard deduction of $6,300. Married individuals filing separately can do the same.

The personal exemption amount increases to $4,050 for 2016. Same as the standard deduction, this exemption means you can earn even more money without owing tax on it. This also doesn’t even take into account various qualifying tax credits. Some available are the Child Tax Credit, the Hope Scholarship Credit, the Lifetime Learning Credit, and the Earned Income Credit.

The personal exemption phases out starting with an income of $259,400 for single filers, $285,350 for heads of household, and $311,300 for married individuals filing jointly.

How to calculate your tax

The days of doing our own tax returns by hand is long gone. The IRS still provides a handy table for quick calculations, but these days software such as TurboTax, H&R Block, or your real live accountant, will handle this for you. It’s still good to understand the basic calculation, though.

Assume you’re a single filer with a gross income of $110,350, and you have no dependents. You can subtract the personal exemption for a result of $106,300. You can then choose to itemize your deductions, or just take the standard deduction. Choosing the standard deduction of $6,300 reduces your taxable income to $100,000. Now, you apply the marginal tax rates.

With $100,000 in income after the standard deduction, you would owe 10% of $9,275, 15% of $28,375 (the total income covered in the second tax bracket), 25% of $53,500, and 28% of the leftover $8,850 (the fourth tax bracket, which includes the remaining taxable income). You can take a shortcut here, too. You maxed out the first three tax brackets (the first $91,150 of your income), which will add up to $18,558.75 in taxes for everyone.

Now take the remaining income of $8,850 and apply the marginal tax rate of 28%. This adds another $2,478 to your tax bill, bringing the year’s total to $21,036.75.  While your marginal tax rate ranged from 10-28%, your effective tax rate comes out to only 19.79% when spread over your total income for the year. That amount could also be reduced further by any tax credits for which you might qualify.

Also, your effective tax rate would be technically lower if you’ve had reductions applied to your gross income. This would include this like 401(k) contributions. And, keep in mind that some investment income could be taxed separately, at a lower interest rate.

Are you ahead of the ball game for your 2016 taxes? What are your biggest concerns this year?

Updated September 24, 2016 and originally published September 15, 2016.

About the author

Stephanie is the managing editor at shizennougyou, as well as a contributing writer. She graduated from Baylor University with a Biology degree, but has since found a passion for personal finance. She also writes for a number of other sites -- including Dough Roller, Five Cent Nickel, and allCards -- in addition to running her small business, Pink Orchid Press. Stephanie lives in Washington, DC with her two sons and a German Shepherd. View all articles by .

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