2015 Federal Tax BracketsIt’s a busy time of year for the IRS. This is usually when the IRS releases information about tax brackets, as well as changes to retirement account contributions, as well as what constitutes the standard deduction.

The IRS has released its new brackets for 2015, which means that you need to pay attention to these starting January 1, 2015. You’ll file your 2014 taxes by April 15, 2015, but you’ll be using the current tax brackets. Keep that in mind as you look at what to expect next year, and start your tax planning.

For individual taxpayers, the tax brackets are as follows:

  • 10% bracket: $0 – $9,225 
  • 15% bracket: $9,226 – $37,450 
  • 25% bracket: $37,451 – $90,750 
  • 28% bracket: $90,751 – $189,300 
  • 33% bracket: $189,301 – $411,500 
  • 35% bracket: $411,501 – $413,200 
  • 39.6% bracket: $413,201 and above

For those married filing jointly, the brackets are as follows:

  • 10% bracket: $0 – $18,450 
  • 15% bracket: $18,451 – $74,900 
  • 25% bracket: $74,901 – $151,200 
  • 28% bracket: $151,201 – 230,450 
  • 33% bracket: $230,451 – $411,500 
  • 35% bracket: $411,501 – $464,840 
  • 39.6% bracket: $464,840 and above

For married filing separately, here is how the brackets fall out:

  • 10% bracket: $0 – $9,225
  • 15% bracket: $9,226 – $37,450
  • 25% bracket: $37,451 – $75,600 
  • 28% bracket: $75,602 – $115,225
  • 33% bracket: $115,226 – $205,750
  • 35% bracket: $205,751 – $232,425
    39.6% bracket: $232,426 and above

For those who file as the head of household, here are the new brackets:

  • 10% bracket: $0 – $13,150 
  • 15% bracket: $13,151 – $50,200 
  • 25% bracket: $50,201 – $129,200 
  • 28% bracket: $129,201 – $209,850 
  • 33% bracket: $209,851 – $411,500 
  • 35% bracket: $411,501 – $439,000 
  • 39.6% bracket: $439,001 and above

It’s important to understand that our tax brackets work on a marginal basis, and that your taxable income is different from your gross income.

First of all, you aren’t taxed on the total amount of money that you make. The IRS allows you to take deductions that reduce your taxable income. So if you make $78,000 a year, and you are married, that doesn’t mean that you are going to be in the 25% tax bracket. You might have deductions, such as mortgage interest and charitable giving, that bring down your income. Perhaps your income, after your deductions, is actually $55,000 per year. That puts you in the 15% tax bracket instead.

The next consideration is the marginal nature of the tax brackets. You don’t pay the percentage of the tax listed in your bracket. So, if your taxable income is $55,000, you wouldn’t pay 15% on that entire amount. Instead, you would pay 10% on all of the income up to $18,450, and then you pay 15% on the amount beyond that. So, you would pay $1,845, and then pay an additional 15% of $36,550, or $5,428.50.

The total tax bill in this example would be $7,327.50. However, you might qualify for tax credits, such as the Earned Income Tax Credit, or you might have credits from other items, such as installing a green energy system in your home. Credits directly reduce what you owe. So, if you are eligible for $3,500 in various credits, then your tax bill comes to $3,827.50.

It’s also worth noting that you likely have a certain amount withheld from your paycheck each month, so you probably don’t have to worry about coming up with the entire amount at tax time. Run the numbers, though, and consider what these new brackets will mean for you next year.