Your 2013 Tax Rate – Understanding Your IRS Marginal and Effective Tax Bracket

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With the 2012 tax season in the rear view mirror, its time to start thinking about 2013 taxes and strategies that you can put in place to minimize taxes owed in 2014.  But before that take some time to familiarize yourself with the new 2013 tax brackets shown below. But, be careful in reading the table below as your effective tax rate can be quite different from your marginal rate as described below.

2013 Federal IRS Tax Tables

When you look at the above table you may just assume that your federal tax rate is simply the bracket in which your income falls. For example, if you earn $120,000 and are single – your taxable income would be $110,000 after taking the standard deduction and personal exemption (120,000 – 3,900 – $6,100) and assuming no other deductions. Looking at the table this may suggest that you fall into the 28% tax bracket. But in reality you would not be really paying the IRS twenty eight percent of your taxable income. Because the US tax system is progressive or graduated, your effective tax rate is not a flat rate. Your taxes are figured based on the portion of your taxable income that falls into the respective tax bracket, with the top rate you pay (based on the final bracket you fall in) being your marginal tax rate. Continuing with the above example, if you’re single and have a taxable annual income of $110,00 you pay 10% on a portion of your taxable income up to the 2013 expected bracket limit of $8,925, 15% on the next portion, 25% on the third and then 28% on the final portion. Your marginal or top tax rate is 28%, with your effective tax rate being total taxes paid, divided by total income. In this case it would be $24,093/$120,000 = 20.08%.

In the table below I have made figuring your actual taxes easier by providing you a simplified way to calculate your effective tax rate. You only need to find your taxable income bracket, filing status and you can get an idea of the federal taxes you would owe. Divide it by 12 to get a monthly estimate.

2013 Effective Tax Brackets

2013 Effective Tax Rates and Liability

There were also also of tax changes resulting from the fiscal cliff legislation (ATRA act of 2012) which is covered in this post.

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{ 1 comment… read it below or add one }

Jack Armstrong October 31, 2013 at 12:22 pm

On the chart for taxes – the first one shows std deduction for head of household to be $6,100 while the second one shows $8,950.

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