I am a law school grad studying for the bar exam and planning on practicing tax as part of my law practice.
I want to try to clear up a misunderstanding I see over and over again in this subreddit regarding the progressive tax structure in the United States.
As most of you know, the current (2018) tax brackets are as follows for a married couple:
0-$19,050 - 10% $19,050 - $77,400 - 12% $77,400 - $165,000 - 22% $165,000-$315,000 - 24% $315,000 - $400,000 - 32% $400,000 - $600,000 - 35% $600,000+ - 37%
Note that these tax brackets apply to taxable income, so are after deductions.
https://files.taxfoundation.org/20180207142513/TaxFoundation-FF567-Updated.pdf
I talk to people on a pretty regular basis who are under the impression that any income earned that throws them into the next tax bracket means ALL income is now taxed at that rate. For example: a lot of people think if you are in the 12% tax bracket having $77,400 in income, that working extra and making an extra dollar will cause all income to be taxed at the 22% rate. This is not the case. In the above example, the first $19,050 is taxed at 10%, the next $58,350 would be taxed at 12%, and that extra dollar earned taxed at 22%.
There seems to be a wide misconception that if you work overtime you could actually hurt yourself by bumping yourself into the next tax bracket, but that is not the case. It is impossible to make less money due to income taxes by earning more money.
I do want to note that it is possible to hurt yourself if you are borderline on the earned income credit or other governmental programs that utilize a “cliff” where if you make more money the benefit stops completely. As a side note - I support progressive phasing of such benefits specifically to prevent people from feeling like earning more money or getting a better job will make them worse off.
Submitted June 07, 2018 at 10:33AM by BankruptcyLawGuy https://ift.tt/2JCMLUW
