To determine your marginal income tax rate, take the first dollar of your income and treat that dollar as if it were a one-time event. The trick to determining a marginal income tax rate is to figure out how much money you would have made in the year if your taxes hadn't been withheld from your paycheck. This is called 'taxable income.'
Once you've figured out your taxable earnings for the year, add those up and then compare them to what you actually received from the government that year. Based on this comparison, then divide by 1 (to make it easier) and multiply by 100-- this number will be your percentage of marginal tax rate. This is important to know because it allows you to find which tax bracket (10%, 15%, 25%, etc.) you are in.
For example, let's say that for the year 2003, you received $4000 after taxes. You figure out that your taxable income is $4250 with a marginal rate of 25%.
(Unadjusted taxable income of $4250 -$1250 = $3700 + 20% tax withheld = $3750)
Now compare this number to the amount of money you actually received from the government. Based on this comparison, find out what percentage of your income is tax-free (upper) and which percentage is taxed at a higher rate (lower).
Once you've figured out your taxable earnings for the year, add those up and then compare them to what you actually received from the government that year. Based on this comparison, then divide by 1 (to make it easier) and multiply by 100-- this number will be your percentage of marginal tax rate. This is important to know because it allows you to find which tax bracket (10%, 15%, 25%, etc.) you are in.
For example, let's say that for the year 2003, you received $4000 after taxes. You figure out that your taxable income is $4250 with a marginal rate of 25%.
(Unadjusted taxable income of $4250 -$1250 = $3700 + 20% tax withheld = $3750)
Now compare this number to the amount of money you actually received from the government. Based on this comparison, find out what percentage of your income is tax-free (upper) and which percentage is taxed at a higher rate (lower).
