# Federal tax rates question

M

#### me

If i earn \$29,050 per year,would i pay 15% tax on the whole amount
(\$4357.50),
or
15% on just the portion between \$7,151 and \$29,050, (\$3284.85)
and 10% on the portion below \$7,151 (\$715.10) making the total \$3,999.95
?

Just want to make sure which is the correct way of working it out.
Got the rates and figures here :
http://taxes.yahoo.com/rates.html

thanks

P

#### Phil Marti

me said:
If i earn \$29,050 per year,would i pay 15% tax on the whole amount
(\$4357.50),
or
15% on just the portion between \$7,151 and \$29,050, (\$3284.85)
and 10% on the portion below \$7,151 (\$715.10) making the total \$3,999.95
Neither. Get a copy of From 1040-ES. Use the worksheet, and you'll see how
it works.

P

#### Paul Thomas, CPA

me said:
If i earn \$29,050 per year,would i pay 15% tax on the whole amount
(\$4357.50),
or
15% on just the portion between \$7,151 and \$29,050, (\$3284.85)
and 10% on the portion below \$7,151 (\$715.10) making the total \$3,999.95
?

For a single person, your first \$8450 is tax free (consisting of \$5150
standard deduction and \$3300 personal exemption in 2006). The remainder,
\$20,600 would generate a tax of \$2713 in 2006. That roughly equates to 10%
on the first \$7550 and 15% on the remaining \$13,050.

That crunches down to a 9.34% effective tax rate (total tax over total
income)

M

#### me

Paul Thomas said:
For a single person, your first \$8450 is tax free (consisting of \$5150
standard deduction and \$3300 personal exemption in 2006). The remainder,
\$20,600 would generate a tax of \$2713 in 2006. That roughly equates to
10% on the first \$7550 and 15% on the remaining \$13,050.

That crunches down to a 9.34% effective tax rate (total tax over total
income)

Great,thanks for the reply.I'm actually married,so i think that \$8450 figure
is for head of household,and that would be my spouse,so i guess it would be
\$ 5150 for me I guess i would not qualify for the \$3300 personal
exemption then,does that only apply if i was single?
Hopefully i have got that bit wrong !!

What are the other deductions that we have no choice in paying,and the
rates,if known? I'm in NV,so State tax is not an issue,but i know there are
other 'forced' deductions.
Just asking becasue i haven't worked in the US before,but i have my work
permit and wanted to find out for sure.

thanks

P

#### Paul Thomas, CPA

me said:
Great,thanks for the reply.I'm actually married,so i think that \$8450
figure is for head of household,and that would be my spouse,so i guess it
would be \$ 5150 for me I guess i would not qualify for the \$3300
personal exemption then,does that only apply if i was single?
Hopefully i have got that bit wrong !!

You have quite a bit wrong. If you are married as of December 31st (there
is still time) then you file either "married filing jointly" or "married
filing separate". Head of household status is for single parents (for the
most part).

With married filing jointly, both incomes get combined, so remember that.
But with combined incomes of \$29,050, you get in 2006, a \$10,300 standard
deduction and you each get a \$3300 personal exemption. So the first \$16,900
is stax free, and you'll pay roughly 10% on the remaining \$12,150, so
federal tax of about \$1215. There may be tax credits that you can take
advantage of to further reduce that.

What are the other deductions that we have no choice in paying,and the
rates,if known? I'm in NV,so State tax is not an issue,but i know there
are other 'forced' deductions.

You mean like Social Security and Medicare tax? That's 6.2% and 1.45%
respectively, and your employer is matching those dollar for dollar. I
wouldn't know if NV deducts unemployment from their workers pay, or if the
employer pays that tax. And there may be other local taxes that get
withheld.

Just asking becasue i haven't worked in the US before,but i have my work
permit and wanted to find out for sure.

Give it a week and call a local CPA or EA in your area and ask.

M

#### me

Paul Thomas said:
You have quite a bit wrong.

I thought i probably would !
If you are married as of December 31st (there is still time)
then you file either "married filing jointly" or "married filing
separate". Head of household status is for single parents (for the most
part).
At the moment she has me down as a dependent becasue i was not working,and
she was down as head of household.That will probably change once i start
working again,right?
With married filing jointly, both incomes get combined, so remember that.
But with combined incomes of \$29,050, you get in 2006, a \$10,300 standard
deduction and you each get a \$3300 personal exemption. So the first
\$16,900 is stax free, and you'll pay roughly 10% on the remaining \$12,150,
so federal tax of about \$1215. There may be tax credits that you can take
advantage of to further reduce that.
Looking at that then, it works out better to file jointly right? She earns
about \$50,000(salaried),and I gave the \$29.050 figure because that will
probably be my maximum over the year, working as an Independant
Contractor.(not a salary)
When we go to file our taxes(at H&R Block or wherever) and we file
jointly,most of what is owed will be from me becasue usually they dont
withhold tax when you are an IC as far as i know,(some employers do)you just
have to declare it at the end of the tax year and then cough up a chunk
based on what you earned over the year.(Just have to make sure i keep some
saved!) She never ends up owing,she usually gets a refund.
You mean like Social Security and Medicare tax? That's 6.2% and 1.45%
respectively,
of the total earnings,or just the taxable amount as for the Fed tax?

and your employer is matching those dollar for dollar. I wouldn't know if
NV deducts unemployment from their workers pay, or if the employer pays
that tax. And there may be other local taxes that get withheld.

Give it a week and call a local CPA or EA in your area and ask.

Thanks again for the replies,trying to get my head round all this confusing
stuff!!

M

#### me

Paul Thomas said:
You have quite a bit wrong. If you are married as of December 31st (there
is still time) then you file either "married filing jointly" or "married
filing separate". Head of household status is for single parents (for the
most part).

With married filing jointly, both incomes get combined, so remember that.
But with combined incomes of \$29,050, you get in 2006, a \$10,300 standard
deduction and you each get a \$3300 personal exemption. So the first
\$16,900 is stax free, and you'll pay roughly 10% on the remaining \$12,150,
so federal tax of about \$1215. There may be tax credits that you can take
advantage of to further reduce that.

You mean like Social Security and Medicare tax? That's 6.2% and 1.45%
respectively, and your employer is matching those dollar for dollar. I
wouldn't know if NV deducts unemployment from their workers pay, or if the
employer pays that tax. And there may be other local taxes that get
withheld.
Just realised that i would have to pay double (15.3%)if i am working as an
IC ,as i think that counts as self-employed. Dammit.

P

#### Paul Thomas, CPA

me said:
I thought i probably would !

Then there is time to get unmarried..........or not!!!

At the moment she has me down as a dependent becasue i was not working,and
she was down as head of household.That will probably change once i start
working again,right?

Wrong. You are not her "dependent", nor can she file as Head-of-Household
for tax purposes. If that is how she filed, she needs to amend the return
ASAFP.

Looking at that then, it works out better to file jointly right? She earns
about \$50,000(salaried),and I gave the \$29.050 figure because that will
probably be my maximum over the year, working as an Independant
Contractor.(not a salary)

Then you have to account for closer to \$79,000 of income, and your SE income
(\$29,000 less any business related expenses) is subject to income tax as
well as self-employment taxes. And yse, you are responsible for the full
amount of the SE tax. If there weren't any business deductions your SE tax
on \$29k is about \$4300. Income tax on \$79k after the standard and personal
exemptions comes to about \$9000. The thing to account for is her
withholdings, then you have to pay the rest, now through estimated tax
payments, or later when the return is filed next April. Now is cheaper than
later with regards to penalties.

When we go to file our taxes(at H&R Block or wherever) and we file
jointly,most of what is owed will be from me becasue usually they dont
withhold tax when you are an IC as far as i know,(some employers do)you
just have to declare it at the end of the tax year and then cough up a
chunk based on what you earned over the year.(Just have to make sure i
keep some saved!) She never ends up owing,she usually gets a refund.

Yup, see 1040ES and make some estimated payments.

of the total earnings,or just the taxable amount as for the Fed tax?
That's on the employee wages. Self-Employment tax is closer to 15% of net

M

#### me

Paul Thomas said:
"

Yup, see 1040ES and make some estimated payments.
Yeah I saw that form,there are some things that i just dont have a clue what
to enter.

LOL,thats enough to explode someones brain. Hmm,now do you think the
government make this difficult on purpose ?

P

#### Paul Thomas, CPA

me said:
LOL,thats enough to explode someones brain. Hmm,now do you think the
government make this difficult on purpose ?

Really now, how can an entity that big do anything with fore-thought.

You know it was all done with the intent to make things "easier".

The experienced accountants cringe when Congress enacts a tax law with
"simplification" in the title.

That's why none of us a scared of the "flat" tax or the "fair" tax. We know
from experience that it will not be flat nor fair, and damned sure not
"simple".