October 28th, 2008

Pool's Closed

Today's federal income tax primer

Just a quick reference pointer. Here are the federal income tax rates for the 2007 tax year. (This is what applied to the return you filed in April, for the money you earned in 2007. These numbers will change a bit for 2008, but the process will work the same.) Single, married filing jointly, married filing separately, and "head of household" (meaning you're not married but you still have some dependents.) If they seem a little confusing ("$4386.25 plus 25% of the amount over $31,850"), think of it this way:

Take your adjustable gross income (What you were actually paid, minus all the deductions and exemptions you qualify for. Personal deduction/exemption, mortgage interest paid, property taxes, etcetera.) Imagine it's a big pile of money (or casino chips?) that you can divide into stacks. If you're single, take that pile and build your stacks in this order:

First stack: $7,825. Second stack: $24,025. Third stack: $45,250. Fourth stack: $83,750. Fifth stack: $188,850. The sixth stack is everything you have left. These stacks represent the six income tax brackets.

If you make $65,000 a year, and after your deductions, you have $56,000 left, you would have three stacks: $7,825, $24,025, and $24,150. (You make enough to build the first two stacks completely, but can only partially build the third stack.)

The tax rates for single filers are 10%, 15%, 25%, 28%, 33%, and 35%. This means you pay 10% of the money in the first stack, 15% of the money in the second stack, 25% of the third, and so on.

So for our $65K/$56K example, you would pay $782.50 + $3603.75 + $6037.50 = $10,426.75. This is your "tax liability". The tax withheld in your paycheck counts towards this. If you didn't have enough withheld, you wrote a check. If more than that was withheld, you got a refund check.

Yes, that's a nice chunk of change. I'm sure you'd like it to be smaller. You definitely don't want it to be larger.

Do you wonder how the Obama tax plan would affect you? Knock $500 off your tax liability. $9,926.75. That's the "Making Work Pay" tax credit. (If you were making more than $75,000, it would only be $250. If you made over $100K, you wouldn't qualify for it anymore.)

You've heard that the top tax rates will rise to 36% and 39.4%. Guess what? For this example, that doesn't affect you! That's the rates on the fifth and sixth stacks. It's an extra 3% of the fifth stack, and an extra 4.9% of the sixth stack. You have to have an AGI of more than $160,850 to start building the fifth stack! ($349,700 to start building the sixth stack.)

Keep this in mind: The Obama tax credits all have income ceilings. They are aimed at middle- and low-income earners.
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My Candidates

President/VP: Barack Obama and Joe Biden. Obama's been my guy for four years. He has the heart, mind, temperament, and compassion to do the job. I liked John McCain eight years ago--I would have gladly voted for him then. In the meantime, he's sold out to the religious right and the party establishment he used to rebel against. Obama is the right man to guide us out of the fiscal and military disasters we're in, and McCain is not. That was clear even before he selected unqualified religious loon Sarah Palin as his running mate, a choice which confirms he's not serious about leading well. (Biden voted for the PATRIOT Act, but I'm not abandoning Barack over that.)
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Other Candidates

I've also contributed to these candidates' campaigns. Yes, everybody this year is a Democrat. The Republican Party has fucked itself so badly that almost none of their candidates for state or federal office deserve your vote. (And to be fair, there's some Democrats that sold us out too. You want to talk about banking deregulation, you start at Barney Frank's (D-MA) office.) Anyways:
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