If you have taxable income, the amount of tax you will pay on that income depends on how much you make and the type of income you have. Wages are taxed at different rates from other income sources, such as dividends or interest, and 1099 contractor employees who don't have taxes deducted from their paychecks must also pay the taxes normally fronted by an employer. Even if your only source of income is wages from a regular job, the amount of tax you pay depends on how much you make.
About Tax Brackets
Wages are taxed based on your income level and whether you file your taxes as single or married. These levels are called tax brackets. The brackets are cumulative, which means that your total income is taxed at different levels.
The Tax Cuts and Jobs Act of 2017 (TCJA) was signed into law in December 2017, altering the long-standing tax brackets for individuals; however, that law is only applicable starting with the 2018 tax year, and those returns are not filed until 2019.
Tax Brackets for Individuals Filing Single
For the 2017 tax year (taxes due to be filed in 2018), individuals filing single will be taxed as follows:
- 10 percent of the first $9,325 in income
- 15 percent of all income between $9,325 and $37,950
- 25 percent of all income between $37,950 and $91,900
- 28 percent of all income between $91,900 and $191,650
- 33 percent of all income between $191,650 and $416,700
- 35 percent of all income between $416,700 and $418,400
- 39.6 percent on all income $418,400 and above
For example, if you are an individual who makes $100,000 per year in salary, you will be taxed:
- $932.50 for the first bracket (10 percent of your first $9,325 of income)
$4,293.75 for the second bracket (15 percent of the income between $9,325 and $37,950
) * $13,487.50 for the third bracket (25 percent of the income between
$37,950 and $91,900) * $2,268 for the fourth bracket (28 percent of the income between $91,900 and $100,000)
These add up to a total of $20,981.75 in federal income taxes.
Tax Brackets for Married Individuals Filing Jointly
Married individuals filing joint returns and individuals filing as heads of household have different brackets. For 2017, married couples filing jointly are taxed at:
- 10 percent of the first $18,650 of income
- 15 percent of all income between $18,650 and 75,900
- 25 percent of all income between $75,900 and $153,100
- 28 percent of all income between $153,100 and $233,350
- 33 percent of all income between $233,350 and $416,700
- 35 percent of all income between $416,700 and $470,700
- 39.6 percent of all income over $470,700
Tax Brackets for Individuals Filing as Head of Household
Heads of household brackets are as follows:
- 10 percent of the first $13,350 of income
- 15 percent of all income between $13,350 and 50,800
- 25 percent of all income between $50,800 and $131,200
- 28 percent of all income between $131,200 and $212,500
- 33 percent of all income between $212,500 and $416,700
- 35 percent of all income between $416,700 and $444,500
- 39.6 percent of all income over $444,550
FICA Taxes are Separate from Income Taxes
In addition to income tax, you must also pay FICA taxes, which are your Social Security and Medicare taxes. For the 2017 tax year, the Social Security tax rate is 12.4 percent, and the Medicare tax rate is 2.9 percent. However, individuals who are W-2 employees are responsible for only half of that; employers must pay the rest. Therefore, 6.2 percent of your wages will go toward Social Security, and 1.45 percent will go toward Medicare. Your employer is then responsible for paying 6.2 percent to Social Security and 1.45 percent to Medicare on your behalf.
Individuals who make $128,400 per year or more will pay Social Security taxes only up to that amount. Any income over that amount will not be subject to Social Security tax. Individuals who make more than $200,000 per year (or married couples filing jointly who make over $250,000 per year) are subject to an additional Medicare tax of 0.9 percent on the amounts above these thresholds.
Contractors Must Pay Self-Employment Taxes
Contractors who receive a 1099 form from their employers rather than a W-2 must also pay self-employment tax. Self-employment taxes consist of Social Security and Medicare taxes. As described above, these taxes are split between the employer and the employee in a regular employment situation. However, if you receive a 1099 and your employer deducts no taxes from your pay, you are responsible for the entire 12.4 percent toward Social Security and 2.9 percent toward Medicare in addition to your income taxes.
Most states and some municipalities also levy their own income tax in addition to federal income tax. The tax brackets here apply only to federal taxes.