{"id":9715,"date":"2019-10-25T16:44:16","date_gmt":"2019-10-25T21:44:16","guid":{"rendered":"http:\/\/blog.uwsp.edu\/cps\/?p=9715"},"modified":"2019-12-17T12:58:58","modified_gmt":"2019-12-17T18:58:58","slug":"income-taxes-bush-vs-obama-vs-trump-part-2-federal-individual-income-tax-overview-how-it-works","status":"publish","type":"post","link":"https:\/\/blog.uwsp.edu\/cps\/2019\/10\/25\/income-taxes-bush-vs-obama-vs-trump-part-2-federal-individual-income-tax-overview-how-it-works\/","title":{"rendered":"Income Taxes – Bush vs. Obama vs. Trump Part 2: Federal Individual Income Tax Overview, How it Works"},"content":{"rendered":"\n

The federal income tax structure\nis a progressive tax structure. Theoretically, the more you make the more you\npay. This structure has been a principle tenet of the federal income tax\nsystem, and remained in place under Presidents Bush, Obama, and Trump. As\ndemonstrated below, there are progressively higher tax rates that apply to\nincreasingly higher income levels. The typical American family pays about\none-third of its gross (total) income in\ntaxes. <\/p>\n\n\n\n

Each pay period you will have income taxes withheld from your paycheck. Generally, each year you must file a tax return by April 15 which reflects your income tax liability for the previous year. Your tax return will determine your tax liability for a given year, given your filing status, income, deductions, and credits. Your tax liability is compared to your total income taxes withheld during the year. If your liability is more than what was withheld, you must pay. If your liability is less than what was withheld, you will get a refund. <\/p>\n\n\n\n

To provide a simplified example of\nhow income taxes are calculated, we will use the tax rates in effect in 2017.\nLater, we will explain what changed in 2018. Your taxable income is your gross\nincome (generally wages and investment income) minus certain deductions and\ncredits. The 2018 tax\nlaw also changed the amount of taxes withheld. So, your tax refund or the\namount you had to pay in taxes may have been different than what you expected.<\/p>\n\n\n\n

Let\u2019s assume you were single in\n2017 and had wages of $48,350. The \u201cstandard deduction\u201d in 2017 was generally $6,350\n(slightly higher if blind and\/or over 65) for a single taxpayer ($12,700 for\nmarried filing jointly), meaning a single taxpayer got at least a $6,350\ndeduction. Why $6,350? Because that was the law. It was possible to get more\nthan $6,350, if you could \u201citemize\u201d deductions. Possible itemized deductions\nincluded mortgage interest, state and local taxes, certain medical expenses,\nand charitable contributions. If your itemized deductions exceeded the standard\ndeduction amount, then you took the itemized deduction amount. If itemized\ndeductions were less than the standard deduction amount, then you took the\nstandard deduction. In addition to this deduction, taxpayers could get an\nadditional deduction for \u201cexemptions\u201d. The exemption amount you could take as a\ndeduction was generally $4,050 x number of dependents (generally 1 for yourself,\n1 for your spouse if filing jointly), plus the number of children if you\nprovided the majority of their financial support and they were younger than 19\nor a full-time student younger than 24. The exemption amount was phased out for\nhigh income taxpayers.<\/p>\n\n\n\n

So, in our simplified example for\na single taxpayer, the taxable income is calculated below, assuming the\nstandard deduction is taken and there is one exemption:<\/p>\n\n\n\n

Income: $48,350
Less: Standard deduction: $6,350
Less: Exemption: $4,050
Taxable Income: $37,950<\/p>\n\n\n\n

Tax\ntables, which are set by law, are used to determine the taxpayer\u2019s tax\nliability.<\/p>\n\n\n\n

2017\ntax tables, which show the tax rate applicable for income in a given bracket by\nfiling status, are indicated below. The brackets are generally adjusted each\nyear for inflation. <\/p>\n\n\n\n
Tax Rate<\/strong> <\/td>Single<\/strong> <\/td>Married Filing Jointly<\/strong> <\/td>Married Filing Separately<\/strong> <\/td>Head of Household<\/strong> <\/td><\/tr><\/thead>
10% <\/td>$0-$9,325 <\/td>$0-$18,650 <\/td>$0-$9,325 <\/td>$0-$13,350 <\/td><\/tr>
15% <\/td>$9,326-$37,950 <\/td>$18,651-$75,900 <\/td>$9,326-$37,950 <\/td>$13,351-$50,800 <\/td><\/tr>
25% <\/td>$37,951-$91,900 <\/td>$75,901-$153,100 <\/td>$37,951-$76,550 <\/td>$50,801-$131,200 <\/td><\/tr>
28% <\/td>$91,901-$191,650 <\/td>$153,101-$233,350 <\/td>$76,551-$116,675 <\/td>$131,201-$212,500 <\/td><\/tr>
33% <\/td>$190,651-$416,700 <\/td>$233,351-$416,700 <\/td>$116,676-$208,350 <\/td>$212,501-$416,700 <\/td><\/tr>
35% <\/td>$416,701-$418,400 <\/td>$416,701-$470,700 <\/td>$208,351-$235,350 <\/td>$416,701-$444,550 <\/td><\/tr>
39.6% <\/td>$418,401 and above <\/td>$470,701 and above <\/td>$235,351 and above <\/td>$444,551 and above <\/td><\/tr><\/tbody><\/table>\n\n\n\n

The rates apply to the\nincome in a given bracket. For example, if you are\nsingle, you paid a 10% rate on income up to $9,325. In 2017, income over $9,325\nwas taxed at a 15% rate up to $37,950. So if your taxable income was $37,950,\nyour tax liability was .10($9,325) + .15($37,950-$9,325) = $5,226.25. The\n\u201cmarginal tax rate\u201d would be 15%. The marginal tax rate refers to the rate that\napplies to the tax bracket the taxpayer falls based on total taxable income.\nThe $5,226.25 is your tax liability – you got a tax refund if more was withheld\nfrom your paychecks, you paid taxes if less was withheld from your paychecks.<\/p>\n\n\n\n

Note \u2013 an important point is that everyone pays the same rate for taxable income in a given bracket. You, me, and President Trump pay a 10% rate for income in the lowest tax bracket. You, me, and President Trump pay a 15% rate for income in the next highest bracket. So single taxpayers, no matter what their total taxable income was, paid a 10% rate on the first $9,350 of taxable income in 2017. We kept the example simple to try and explain the fundamentals. There were certain tax credits available that reduced taxable income, and taxes on investment income was subject to different tax rules, as explained later. An additional deduction was also available for a contribution to a traditional individual retirement account. <\/strong><\/p>\n\n\n\n

CBEI Blog Series: Income Taxes \u2013 Bush vs. Obama vs. Trump<\/strong><\/em>
Part 1: Intro<\/a>
Part 2: Federal Individual Income Tax Overview, How it Works<\/a>
Part 3: President Obama vs. President Bush<\/a>
Part 4: President Trump vs. President Obama<\/a>
Part 5: Corporate Incomes \u2013 Briefly but Importantly<\/a><\/p><\/blockquote>\n\n\n\n

\"Kevin<\/figure>
\n

Kevin Bahr is a professor emeritus of finance and chief analyst of the Center for Business and Economic Insight<\/a> in the Sentry School of Business and Economics at the University of Wisconsin-Stevens Point. <\/p>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"

The federal income tax structure is a progressive tax structure. Theoretically, the more you make the more you pay. This structure has been a principle tenet of the federal income tax system, and remained in place under Presidents Bush, Obama, and Trump. As demonstrated below, there are progressively higher tax rates that apply to increasingly […]<\/p>\n","protected":false},"author":136,"featured_media":9757,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[527],"tags":[],"_links":{"self":[{"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/posts\/9715"}],"collection":[{"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/users\/136"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/comments?post=9715"}],"version-history":[{"count":3,"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/posts\/9715\/revisions"}],"predecessor-version":[{"id":9743,"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/posts\/9715\/revisions\/9743"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/media\/9757"}],"wp:attachment":[{"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/media?parent=9715"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/categories?post=9715"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/tags?post=9715"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}