Category Archives: Taxes

Understanding Your Tax Bracket vs. Effective Tax Rate

Did you know that if you are in the 25% tax bracket you do not pay 25% tax on your income?

Think about this for a second.  In 2016 a married couple who made $75,300 would be in the 15% tax bracket.  That would mean you would owe taxes of $11,295 ($75,900 X .15).

But, if you made $1 more in the year or $75,301, you would jump up to the 25% tax bracket.  That would mean you would owe taxes of $18,825 ($75,901 X .25).

You would keep $64,005 if you made $75,300.

But you would only keep $56,475 if you made $1 more.

If our tax system worked this way there would be no incentive to work harder and make more money?

I’ve had conversations with officers who didn’t want to work more overtime because it would put them in a higher tax bracket.  Luckily this is not how our tax system works. Continue reading

Understanding Withholding Taxes

The first misconception everyone needs to understand is the money coming out of your paycheck for taxes has basically nothing to do with how much money you owe in taxes.

The money that comes out of your paycheck is only an assumption of how much tax you may owe at the end of the year (more accurately on April 15 the following year).  If too much is taken from your paycheck you get a refund of the difference.  If not enough is taken out you owe the difference.

Now that we’ve gotten that out of the way we can start to break down how tax withholding works. Continue reading