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The federal income tax brackets change annually, with six different brackets based on income and filing status. The brackets and rates have changed significantly over the years, with current brackets being more favorable to higher earners.
Income tax brackets at the federal level change from year to year, sometimes drastically, depending on what policies the government has chosen to implement. There are currently six different income tax brackets, based on your income as a single filer, a couple filing together, a couple filing together, or a head of household. Generally, the tax change in lower income tax brackets is relatively small from year to year, but occasionally a large change will be implemented, increasing or decreasing the tax burden of a specific bracket. The brackets themselves also change from year to year, so that a certain income puts you in one bracket one year, and a different bracket in the next.
In 2008, there were six income tax brackets for a single filer, ranging from $0 to $357,700 to $357,700. The first bracket, ranging from $0 to $8,025, had a 10% tax rate; the second bracket, ranging from $8,025 to $32,550, had a 15% tax rate; the third bracket, ranging from $32,550 to $78,850, had a 25% tax rate; the fourth bracket, ranging from $78,850 to $164,550, had a tax rate of 28%; the fifth bracket, ranging from $164,550 to $357,700, had a tax rate of 33%; and the sixth and final tier, covering all incomes of $357,700 and above, had a 35% tax rate. Although the tax rates remained the same for different filing statuses, the brackets themselves changed.
For example, in 2008, a person presenting themselves as the head of household would fall into the third bracket if they earned between $43,650 and $112,650, reflecting the fact that they need to support extra members. A couple filing jointly would fall into the third tier if they earned between $65,100 and $131,450, nearly double the single filer’s tier. And a couple performing separately would enter the third tier if they earned between $32,550 and $65,725.
In 2009, the rates remained the same as in 2008, although the parentheses have changed slightly. The upper range at first support, for example, has moved to $8,350, the second support has moved to $33,950, and the qualification for sixth support has moved up to $372,950. These changes are fairly small and largely account for inflation.
More drastic changes can be seen when comparing years back. For example, in 2000, there were only five brackets, with the lower current bracket essentially being eliminated. The tax rate itself was quite different: in the first tier, 15%, 28% in the second, 31% in the third, 36% in the fourth, and 39.6% in the fifth. The fifth group included anyone earning $288,350 or more, so current income tax brackets are much more favorable to those earning more. For example, a person earning $300,000 in 2000 would have paid 39.6%, or $118,800; in 2008, the same person would fall into the fifth bracket, with a tax rate of 33%, or $99,000, a savings of $19,000.
Asset Smart.
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