Federal income taxes seem ever-changing and shrouded in a veil of vague rules and complicated math. Tax season offers relief for some, as they anticipate extra funds for the year. But for others it is a time of stress as they wonder how much they owe the federal government.
But what if the veil could be pulled back to reveal straightforward numbers and a way to calculate exactly what taxes you owe? This post aims to do exactly that. I will explain first what federal income taxes are and how they apply to you. Then I have a nifty little chart followed by an example to help you calculate taxes you owe based on your income.
What is Federal Income tax?
Federal income taxes are charged by the internal revenue service (IRS) and are considered the largest source of income for the Federal Government. The funds collected are used for expenses that include but are not limited to improving sectors of public education, disaster relief, and national defense. Basically, it is a system in which citizens pay for the upkeep and continued growth of the country.
How Does The System Work?
Taxes are applied to your annual gross income — which is total income before any deductions by your employer or otherwise. There are several categories in which you can file: single, head-of-household, married or separated. From there, the amount you pay is broken down into 7 progressive brackets. This means the more you earn, the more you pay. Below is a chart that represents how much you can expect to pay in 2022.
|Tax Bracket||Taxes Owed|
|10%||10% of income up to $9,950|
|12%||12% of income over $9,950|
|22%||22% of income over $40,525|
|24%||24% of income over $86,375|
|32%||32% of income over $164,925|
|35%||35% of income over $209,425|
|37%||37% of income over 523,600|
Now that you know the breakdown, let’s practice with an example.
An annual gross income is $40,000 would be charged in 2 tax brackets. 10% for the first $9,950 (or $995) and 22% on the remaining $30,050.
Not exactly a good time but knowledge is power. If you know more about the federal tax system you can mentally prepare and hopefully make tax season a little less stressful.