Tax brackets, refunds and what you need to know about them

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Tax brackets may be one of the most misunderstood aspects of the tax system — and that can hurt taxpayers.

“In the past three days, I’ve had two people say to me, ‘I have a dumb question: Is it true if I’m right against the tax bracket, and I make $100 more and get bumped into the next tax bracket I’ll pay thousands of dollars extra in taxes?'” says Chris Mulvaney, a tax director at CBIZ MHM. “There is this misperception that all your income will be taxed in the top bracket.”

As that question suggests, many people believe that their top marginal rate reflects the percentage they’ll pay on their entire income. In other words, a single taxpayer with $100,000 in annual income might mistakenly believe that her top marginal rate of 24% applies to every dollar she earns.

But that’s not how tax brackets work. Instead, she’ll pay 10% on her first $9,700 of income, then 12% on income over $9,700; 22% on income above $39,470; and 24% on the portion of her income above $84,200. 

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What you don't know about your tax bracket can hurt you.

In a nutshell, your top marginal rate reflects what you’ll pay on the portion of your income that falls into that top bucket — but your effective rate, or what you actually pay the IRS, is likely to be much lower because of that graduated system.

“With the tax reform in 2018, we have seven brackets that you go up as you go up in taxable income,” says Dina Pyron, global leader of EY TaxChat, a tax-prep service from Ernst & Young.


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