I’m not sure if there is a better answer to this than actually reading through the instructions for the 1040 to see how the numbers are being calculated.
Ina very general sense, they add up all your income and then tax the first $x at 0%, the next $Y at 10%, the next $Z at 12% and so on, where the amounts at each percentage are determined by the tax bracket boundaries and standard deduction, which in turn depend on your filing status. Then you can receive certain credits which the tax code allows you to subtract from your tax liability, generally for doing things the government wants to encourage or support people doing, like the child tax credit for having a kid, or certain tax credits for college expenses. What’s left is your tax liability for the year.
If you want more detail than that, you really need to read through the instructions to understand each part of the calculation. If you did that and were still unsure about something, was there a specific part of that which doesn’t make sense?
selene_666 on
Tax is based on your total income each year. As an oversimplified example with fake numbers:
* The first $20,000 you earn is not taxed
* The next $20,000 you earn is taxed 10%
* The next $20,000 you earn is taxed 20%
* The next $100,000 you earn is taxed 30%
* Any income above that is taxed 40%
For example, if you earned $75,000 then your tax would be ($0 + $2000 + $4000 + $4500) = $10,500
Overall this makes your tax rate 14%.
.
There are circumstances that change those brackets. If your income is supporting an entire family, you owe less tax than a single person. If you pay for college or save for retirement or otherwise spend money in ways that the government wants to encourage, you can leave that money out of your income before calculating the tax.
.
That’s what you calculate annually when you file your tax return. You do this after the year ends so that you know *exactly* how much income you had.
But how does your employer calculate how much tax to take out of your paycheck? They know how much they pay you each week, so they estimate your annual income. You fill out a form telling your employer about any additional income you’ll have and anything that adjusts your tax calculation. Then they do the math to calculate your tax rate.
In my example above your tax rate was 14%, so your employer would withhold 14% of your pay for tax.
I__Know__Stuff on
If you are asking about withholding, the government doesn’t take money out of your pay. Your **employer** withholds an amount based on how you filled out your W-4. If that is your question, let me know and I can explain further.
The details of how the employer calculates hiw much to withhold are in publication 15-T.
3 Comments
I’m not sure if there is a better answer to this than actually reading through the instructions for the 1040 to see how the numbers are being calculated.
Ina very general sense, they add up all your income and then tax the first $x at 0%, the next $Y at 10%, the next $Z at 12% and so on, where the amounts at each percentage are determined by the tax bracket boundaries and standard deduction, which in turn depend on your filing status. Then you can receive certain credits which the tax code allows you to subtract from your tax liability, generally for doing things the government wants to encourage or support people doing, like the child tax credit for having a kid, or certain tax credits for college expenses. What’s left is your tax liability for the year.
If you want more detail than that, you really need to read through the instructions to understand each part of the calculation. If you did that and were still unsure about something, was there a specific part of that which doesn’t make sense?
Tax is based on your total income each year. As an oversimplified example with fake numbers:
* The first $20,000 you earn is not taxed
* The next $20,000 you earn is taxed 10%
* The next $20,000 you earn is taxed 20%
* The next $100,000 you earn is taxed 30%
* Any income above that is taxed 40%
For example, if you earned $75,000 then your tax would be ($0 + $2000 + $4000 + $4500) = $10,500
Overall this makes your tax rate 14%.
.
There are circumstances that change those brackets. If your income is supporting an entire family, you owe less tax than a single person. If you pay for college or save for retirement or otherwise spend money in ways that the government wants to encourage, you can leave that money out of your income before calculating the tax.
.
That’s what you calculate annually when you file your tax return. You do this after the year ends so that you know *exactly* how much income you had.
But how does your employer calculate how much tax to take out of your paycheck? They know how much they pay you each week, so they estimate your annual income. You fill out a form telling your employer about any additional income you’ll have and anything that adjusts your tax calculation. Then they do the math to calculate your tax rate.
In my example above your tax rate was 14%, so your employer would withhold 14% of your pay for tax.
If you are asking about withholding, the government doesn’t take money out of your pay. Your **employer** withholds an amount based on how you filled out your W-4. If that is your question, let me know and I can explain further.
The details of how the employer calculates hiw much to withhold are in publication 15-T.