Each year, as W-2 forms start arriving in the mail and accountants find their schedules booked, millions of Americans have income taxes on their minds. Self-employed individuals might wonder if they’ve paid enough quarterly taxes. Employees might worry whether they calculated deductions on their W-4s correctly. Beginning investors might have concerns about reporting capital gains.
Whether you’re a freelancer, a salaried employee or a retiree, tax strategy can be confusing and tax season can be confounding. Fortunately, there’s a variety of resources available that can limit some of the uncertainty surrounding your filing process. The IRS has created easy-to-use charts called taxable income tables to help take the guesswork out of understanding the amount of income taxes you owe. Knowing how these tables work can help simplify your personal filing process before Tax Day rolls around.
What Is a Taxable Income Table?
A taxable income table is a chart that the IRS publishes and updates each year. Many states also produce their own taxable income tables that follow their respective specific income tax rules. The tables have the same purpose as the IRS tables for federal income taxes, and most states’ taxable income tables work the same way as the tables the IRS produces. For the purposes of this article, we’re focusing on the IRS tables to give you a more general overview.
The table is a very simple method of understanding how much income tax you’ll owe, and anyone who files a Form 1040 can use the table. Rather than displaying a range or a percentage, this table can tell a filer the exact dollar amount of income taxes they need to pay for the year. The table has columns that help to fill in the blanks of the following sentence: “If line 15 (taxable income) is ___ and you are ___ your tax is ___.”
The term “line 15” refers to the 15th line on Form 1040. Form 1040 is the U.S. Individual Income Tax Return, and the form is used to calculate total taxable income. The blank after the words “you are” refers to your tax filing status. People who are single choose the tax filing status “single.” Married taxpayers can choose to file their taxes jointly or separately. A single individual can file as a head of household if they cover at least 50% of the expenses for one or more dependents.
How to Use a Taxable Income Table
To use a taxable income table, the first step is to complete the correct version of Form 1040. Once you’ve done this, you’ll know the sum of your total annual income minus all applicable deductions, and you can use these details to read the table.
There are two major sections on the table. On the left side, there are income ranges. The start of each income range appears in a column labeled “At least,” and the end of each income range appears in a column labeled “But less than.” On the right side, there are tax filing statuses listed from left to right in the following order: single, married filing jointly, married filing separately and head of household. The amount of income tax you owe is found at the intersection of the row where your income range appears and the column for your correct filing status.
Because income from one person to another can vary greatly, the taxable income table is broken up into several smaller tables of $1,000 increments. For example, there’s a table for $1,000, one for $2,000, one for $3,000 and so on. Each table shows a small subset of income ranges to make it easier for you to find your correct taxable income amount rather than searching through a table with thousands of possibilities.
Suppose Nick has completed Form 1040, and line 15 shows his taxable income as $35,800. He’s married and files his taxes jointly with his spouse. To use the taxable income table, Nick needs to find the table that has $35,000 in bold. (Remember, the table is divided into several smaller tables in increments of $1,000.) Underneath the $35,000 square, Nick fits into the income range that reads, “at least $35,800 but no less than $35,850.” Because Nick’s filing status is “married filing jointly,” he needs to look at the number in the “married filing jointly” column that intersects with his income range. For the 2021 tax year, that number is 3,901, so Nick owes $3,901 in federal income taxes.
Other Helpful Tax Tables
Many taxpayers are justifiably motivated to better understand their tax brackets. While it’s useful to understand what tax bracket your income falls under, you can take your calculations one step further with the taxable income table. This table shows exactly how much income tax you owe, and it factors in the progressive tax rate.
The taxable income table is always published by the IRS in a booklet called 1040 and 1040-SR Tax and Earned Income Tax Credit Tables. The booklet is also labeled with the tax year to which its information is applicable. As the name suggests, this booklet also contains tables for calculating your Earned Income Tax Credit (EITC). The EITC is a tax credit the IRS extends to certain working taxpayers and is often beneficial for people with children. If you owe more in taxes than the amount of the credit, the amount you owe is reduced by the amount of the credit — you’ll subtract the credit amount from the amount you owe, and that new number becomes what you owe.
To use this table, start by filling out the EITC worksheet called Publication 596 for the appropriate tax year. That worksheet results in an “at least…but less than…” dollar amount. Using that information, you’ll find that dollar amount on the EITC table. Next, find your applicable filing status. On this table, “single,” “married filing separately” and “head of household” are all listed under one column. “Married filing jointly” is a separate column. Underneath each of those two major columns, there are more divisions for the number of children you have, ranging from zero to three. The number at the intersection of the dollar range row from the worksheet and the column that corresponds to your filing status and the number of dependents is the total EITC amount you’ll receive.
Whether you do your taxes by hand or use software, these tables are designed to be simple enough that anyone can understand their taxes in relation to income. Both the taxable income table and the EITC table produce a solid number, not a range, that you can expect to owe or receive, giving you a clearer picture of your finances in the process.