A tax table chart is a tool that helps you determine how much income tax you owe. To correctly read a federal income tax table chart, here are a few things you need to do so that you have the necessary numbers to effectively use the chart.
Figure Out Your Filing Status
The first thing to do is determine your filing status. Fortunately, this part is pretty self-explanatory. Use your legal marriage status on the last day of the tax year.
If you’re not married but support a qualifying dependent for the majority of the year, you can select the “head of household” category. This will yield a lower tax rate than the single status.
Some taxpayers opt to file their taxes using the “married filing separately” designation. Each filing status has its own tax table: single, head of household, married filing jointly or qualifying widow, or married filing separately, according to Bankrate.
Calculate Your Taxable Income
The number ranges in the federal tax chart refer to your taxable income, not your gross income. To calculate your taxable income, you first determine your adjusted gross income. From this figure, subtract your above-the-line deductions and your standard or itemized deductions.
Common above-the-line deductions include items like health insurance premiums, retirement plan contributions, qualifying student loan interest and contributions to a health savings account. Compare your itemized deductions to your standard deduction and use the largest option, as reported by SmartAsset.
Know How to Use the Table
One mistake that taxpayers commonly make is believing that a tax table applies to the full amount of their taxable income. Instead, you divide your income into chunks, called brackets, as described in the tax table. You then apply the taxation rate for each tax bracket to that chunk of income. Add each chunk together to calculate your final tax.
Use the Table to See How Much Tax You Owe
Assume you’re married filing jointly with a taxable income of $50,000 in 2019. The first tax bracket ends at $19,400. This is the 10 percent bracket; your income tax for the first $19,400 is $1,940.
The next bracket is the 12 percent bracket, and its range is $19,401 to $78,950. After subtracting your 10 percent bracket income, you have $30,600 falling in the 12 percent bracket. The income tax on this chunk is $3,672. Your total tax obligation is $5,612.
Consider Your Tax Credits
Another detail that can influence your income tax obligation is whether you qualify for a tax credit. Instead of reducing the amount of your taxable income, a tax credit reduces the amount of your final tax responsibility, as stated by Investopedia. Tax credits do not affect your tax bracket.
For example, if the IRS tax table chart reports that you owe $4,500 in income tax and you qualify for a tax credit of $1,000, this tax credit reduces your tax obligation to $3,500.