How much do you pay in taxes? That’s a question that’s a mystery to many people. In 2018, taxpayers were caught off-guard when the Tax Cuts and Jobs Act came into effect.
Millions of taxpayers were surprised to learn that their refunds were much smaller than in previous years. What they didn’t realize was that their tax withholdings were less. That gave them more money in their checks, but less in their refunds.
How can you avoid the same fate? Find out what percentage of taxes are taken out so you can plan to tax season.
Income Tax Brackets
In the Federal tax code, there are 7 different tax brackets, ranging from 10% to 37%. There are variations in the income tax brackets depending on your filing status. Your tax bracket is different if you file as single, married (filing jointly or separately), and head of household.
As an example, let’s look at the different tax brackets for 2019 if you’re filing as a single person.
- 10% $0 – $9700
- 12% $9701 – $39,475
- 22% $39,476 – $84,200
- 24% $84,201 – $160,725
- 32% $160,726 – $204,100
- 35% $204,101 – $501,300
- 37% $510031 +
You can see the rest of the income tax brackets in this chart here.
What Percentage of Taxes Are Taken Out?
You know the income brackets now, but does that mean that’s what you’re going to have withheld for taxes? Probably not. As an employee, you have a few layers of taxes. You have state taxes, sometimes local taxes, Federal income taxes, and SSDI taxes.
How much money is taken out depends on your location. You may live in Pennsylvania, where the state tax is 3.07%. That’s a flat tax that applies to everyone.
You may live in Florida, where there is no income tax. There are other states that have tax brackets similar to the Federal brackets.
The other percentages that you have to be concerned with are social security taxes. You’ll see this on your paycheck in a variety of ways. You may see it listed as OASDI (Old age, survivor, and disability insurance), FICA, or SSI.
FICA stands for the Federal Insurance Contributions Act. This law mandates that you have 6.2% withheld for social security. You then have an additional 1.45% withheld for Medicare. If you earn more than $200,000 a year, you will have another .9% withheld from your check.
Your employer pays for the other half to make up your entire contribution. There are still some other factors that play into how much taxes are paid. For example, if you put money into a 401(k) or Health Savings Account, you can lower the percentage that’s taken from your check.
It also doesn’t take into account the number of allowances you took when you completed your W-4 form. On that form, you can take a number of allowances.
The more allowances you take, the less money that’s withheld from your taxes. That can be the difference between owing the IRS in April or getting a refund. Ideally, you want to get it as close as possible.
Taxes for Self-Employed
If you’re one of the growing number of self-employed people, you know that taxes can be a long nightmare.
You’re going to have to pay the self-employed tax, which is 15.3% for Medicare and social security. Employees have their percentages matched by their employers. Since you’re self-employed, you are responsible for the whole thing.
Do you have a side-gig where you earn more than $600 during the year? An extra $50 a month doesn’t seem like much, but if you hit this threshold, you need to report that income to the IRS.
It’s the same as having a debt settled or winning a sports bet for more than $600. That’s additional income that you have to pay taxes on.
If you failed to pay taxes on these earnings, you may get taxed at the self-employment tax rate but have a higher income tax obligation.
Tax Deductions and Credits
There are ways you can lower your tax burden. That’s primarily done through tax deductions and credits in the tax code.
It may not seem fair to self-employed people to pay more in taxes, but you have one big advantage in the form of deductions. You can write off all of your business-related expenses, which will lower your profits and the percentage you’ll pay in taxes.
Everyone can still deduct student loan interest up to $2500 and mortgage interest. You may be able to deduct medical expenses as well. You should consult with a tax pro to make sure you’re taking all the deductions you’re entitled to.
How Much Do You Pay in Income Taxes?
As you can see, paying taxes can be a painful process. There are so many factors in the tax code, it seems impossible to estimate how much you have to pay in taxes.
There are a few ways to estimate. You can use a weekly tax calculator to determine your federal and state withholdings. That can give you a figure, to make sure you have enough taken out in taxes.
If you need to change your withholdings as an employee, you can go to your HR office and fill out a revised W-4 form. That’s the form that payroll uses to determine your tax withholdings.
Paying the Right Amount of Taxes
The tax code is long and confusing. Those who plan ahead and understand how tax withholdings work can minimize their tax obligations.
Ignoring how much taxes are withheld can mean that you’re not taking out enough, which can result in a big tax bill in April.
What percentage of taxes are taken out? It depends on where you live, how much you make, how much you claim in deductions, and how many allowances you have.
You want to make sure that you understand the tax deductions and credits you can use to your advantage. That will help you make sure that you don’t ow more than you should.
Do you want more financial tips? Visit this site often for more tips to make your money work for you.
- How Much Do Solar Panels Cost in Utah? Your Utah Solar Guide - May 4, 2021
- 4 Factors to Consider Before Buying an Investment Property - May 3, 2021
- Home Funding: 7 Key Ways to Finance Your Home Improvement Projects - April 25, 2021