today I want to quickly address the u.s. federal tax brackets for individuals
because they are fairly straightforward but there is a little bit of confusion
about them that I think we could easily fix with some information so in this
video I'll quickly go over the basics of the tax brackets so that they don't seem
so daunting if you're just trying to figure out the basics of how they work
now I am NOT a tax professional by any means so if you guys do come up with
questions about taxes that you need answered by a professional please seek
professional advice and not just advice from some guy on the internet I'll start
by saying that if you currently file your taxes in the United States we use
what's called a progressive graduated income tax and I know that sounds fancy
but it's really not that big of a deal it just means that we use brackets or
levels of taxes for certain amounts of income and then the more income you make
the brackets actually go up as a percentage so the more you make the more
you pay in taxes so according to just the basic tax brackets it is true that
the more you make the more you're taxed but it's just the way it is now the
biggest misconception when it comes to taxes that everybody seems to talk about
is the fact that you have to pay taxes on the highest bracket that your income
reaches and that's what a lot of people think is true so for example let's say
that you made fifty one thousand dollars last year and the income bracket reached
25 percent as soon as you hit fifty thousand dollars well most of us just
assume now that you've got to pay the 25 percent tax on all of that money that
you made because you hit the next point in the brackets but that's not actually
how it works even though a lot of us think that that's how it is our system
kind of works like a ladder so everybody always starts at the bottom and then
they pay income tax on the bottom level and then they move up to the next tier
and the next tier depending on how much income they make and that is how the
system works so the way that it works is that if the tax bracket was 25 percent
for income levels of 50,000 to 60,000 dollars and you made fifty one thousand
dollars then what's really gonna happen is you're only gonna pay taxes on a
thousand dollars because that was the difference of the tier that you actually
hit with the fifty thousand dollar mark so it's not like you have to pay 25
percent on all of the money that you made you only have to pay that
percentage on the amount of money that reaches inside that tier because if it
really worked like that and you made 49 thousand dollars a year and then you got
$1,000 is pushing you into the 25% tax bracket
then you probably wouldn't want that raise because you'd be wasting a bunch
of money literally just paying a bunch of taxes so that's why it works on the
latter level so that it's actually fair and it's an incentive to keep working
harder now I'm going to show you on my computer exactly how the individual tax
brackets work for a single person in 2019 so that you guys can follow along
with some real math it all works pretty much the same but just make sure that
you're paying attention to the status that you're filing so if you're filing
married filing jointly or separate or single or anything like that you want to
put in those correct numbers and then you also want to make sure that the
brackets are correct for the year that you're working in because a lot of the
time the brackets are going to change just a little bit every single year
based on inflation or they might have a major overhaul like they did in 2018 now
let's just hop on my computer and I'll show you exactly how these brackets work
and how to do the math so let's pretend that you made $60,000 in 2019 and you
chose to go with the standard deduction rather than itemizing and I'm also not
including any other deductions or credits here so remember that
everybody's tax situation is gonna vary and this is just for a very basic
understanding of the federal income tax now the standard deduction is available
for everyone no matter how much money you make and currently if you're filing
single status in 2019 then you're gonna get to shave off twelve thousand two
hundred bucks off the top of your income so that's gonna take the hypothetical
sixty thousand dollar income and it's gonna bring it down to forty seven
thousand eight hundred which is a much better starting point and that's what we
get to use on the brackets that I'm gonna show here next now as you can see
here your first zero to ninety seven hundred bucks is gonna be taxed at 10%
so that means that we're gonna pay nine hundred and seventy bucks for the first
step of the ladder as far as income tax goes now the math here is the easiest
because you're just gonna take ninety seven hundred dollars and you're gonna
times that by ten percent and that's what gives you the 970 then the next
income bracket is set between nine thousand seven hundred and one dollars
to thirty nine thousand four hundred and seventy five and that's going to be at a
twelve percent rate so that amounts to another three thousand five hundred and
seventy three bucks that you're gonna need to pay in taxes now in order to get
that answer I just took the difference between thirty-nine thousand four
hundred and seventy-five and nine thousand seven hundred and
and that came out to 29,000 774 and then at that point you just times that by 12
percent which is 0.12 in your calculator just remember that and then that comes
to the final answer of three thousand five hundred and seventy three and if
you guys are liking this video can you please just give it a big thumbs up so
that I can tell if I should make more videos like this in the future
Thanks now the next bracket includes everything from thirty-nine thousand
four hundred and seventy six all the way to eighty four thousand two hundred but
because your total income with the standard deduction is just forty seven
thousand eight hundred you're gonna be paying twenty two percent on that
difference so the next tier is only going to be one thousand eight hundred
and thirty-one bucks at the highest rate of twenty two percent for the income
that you've been making so right here I just took the difference between
forty-seven thousand eight hundred and thirty-nine thousand four hundred and
seventy-six according to the bracket and then that left me with eight thousand
three hundred and twenty-four which I then multiplied that by twenty two
percent remember point two two in your
calculator and then that came to 1831 as our final number and when you add them
all up we have a grand total of six thousand three hundred and seventy four
dollars that we're gonna need to be paying in federal taxes now let's take
the total amount that we just added up which was six thousand three hundred and
seventy four dollars and then divide it by your sixty thousand dollar income and
you're gonna find right here that you're only paying ten point six percent in
total federal taxes for the year and that's called your effective tax rate
which is a much more accurate way of looking at how much you're really paying
in taxes and this is really cool because obviously ten point six percent is a lot
better than the twenty two percent bracket that we hit with the sixty
thousand dollar income now like I said earlier this is just a basic tax
guideline so remember that I didn't include any other credits or other
deductions in the math so just make sure that you seek professional advice for
all of your tax needs I also didn't include any state taxes because they're
all gonna change no matter where you live so just pay attention to that as
well because you're gonna have to pay state taxes on top of your federal taxes
now if you just found this channel and Jason with honest finance and I make a
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