Total Tax Definition

Rate this post
Total Tax Definition

What Is Total Tax?

In the context of personal income tax, total tax is the sum of all taxes owing by a taxpayer for the year.

Key Takeways

  • Total tax is the sum of all the taxes you owe over the course of a year.
  • Total tax amounts are divided into seven tax bands based on your income, ranging from 10% to 37%.
  • The IRS publishes the thresholds for these categories for individuals, heads of household, and married joint filers.
  • Total tax is how the IRS determines whether you are due a refund or owe money to the government.
  • Deductions reduce taxable income.

Understanding Total Tax

The total tax is progressive and depending on the income of the payer. Every year, the Internal Revenue Service (IRS) releases the income criteria for seven tax categories ranging from 10% to 37%.

The total tax number is the second-to-last step in the tax formula, and it includes all credits and deductions owing to the taxpayer but does not include any tax payments received during the year. The total tax is then compared to the payments made to determine if a refund or a balance owing is needed.

Total Tax Examples Under the New Tax Law

In 2022, the lowest total tax rate for a married couple filing jointly is 10% on income up to $20,550. As a result, if the couple made $19,000, they would owe $1,900 in federal income tax. A second hypothetical couple earning more over $647,850 per year would pay the highest rate of 37%.

  Are Health Insurance Premiums Tax-Deductible?

However, the tax is graded, so the high-earning couple would pay 10% on the first $20,550, the same as the first pair, and so on through all brackets. Their only income taxed at 37% would be profits beyond $647,850. As a result, a couple earning $80,000 in 2022 would owe a total of $17,600 in taxes.

Single Taxable Income Tax Brackets and Rates, 2021

RateTaxable Income BracketTax Owed
10%$0 to$9,950$995 or 10% of taxable income
12%$9,951 – $40,525$995 plus 12% of the excess over $9,951
22%$40,526 – $86,375$4,664 plus 22% of the excess over $40,526
24%$86,376 – $164,925$14,751 plus 24% of the excess over $86,373
32%$164,926 – $209,425$33,603 plus 32% of the excess over $164,926
35%$209,426 – $523,600$47,843 plus 35% of the excess over $209,3426
37%Over$523,600$157,804 plus 37% of the excess over $523,600

Source: Internal Revenue Service.

Married Filing Jointly Taxable Income Tax Brackets and Rates, 2021

RateTaxable Income BracketTax Owed

10%
$0 to $19,90010% of taxable income

12%
$19,901 – $81,050$1,990 plus 12% of the excess over $19,901

22%
$81,051 – $172,750$9,328 plus 22% of the excess over $81,051

24%
$171,051to $326,600$29,211 plus 24% of the excess over$171,051

32%
$329,851 – $418,850$67,206 plus 32% of the excess over $329,851

35%
$418,851 – $628,300$95,686 plus 35% of the excess over $418,851

37%
over $628,300$168,993.50 plus 37% of the excess over $628,300

Source: Internal Revenue Service.

Example of How Deductions Affect Total Tax

Income tax, alternative minimum tax, and self-employment tax are all included in the total tax. It is determined after deductions, which have been simplified and somewhat raised for the majority of filers as a result of the recent tax reform.

  Supreme Court Tax Ruling Won't Curb Amazon Dominance

For example, prior to 2018, married couples filing jointly were eligible to a $13,850 standard deduction. They will get a standard deduction of $25,100 in 2021, and an additional $800 in 2022. While these statistics seem considerable in comparison to 2018, the government has also withdrawn the $4,050 individual exemption (or $8,100 for a pair).

Because of the increased standard deduction, fewer homeowners will be able to claim the mortgage interest deduction and other personal deductions, which must be greater than the standard deduction to be effective.

Finally, although the entire tax is certainly total, it is far from permanent. Many sections of the 2017 Tax Reform Act contain a sunset clause. The most significant for middle-class taxpayers will be the expiry of most of the new deduction and exemption provisions at the end of 2025. Unless Congress acts before then, the overall tax for most taxpayers will return to pre-recession levels.

You are looking for information, articles, knowledge about the topic Total Tax Definition on internet, you do not find the information you need! Here are the best content compiled and compiled by the achindutemple.org team, along with other related topics such as: Tax.

Similar Posts