{"id":29744,"date":"2018-03-09T02:00:53","date_gmt":"2018-03-09T08:00:53","guid":{"rendered":"https:\/\/resource-center.hrblock.com\/?p=29744"},"modified":"2023-11-20T10:07:38","modified_gmt":"2023-11-20T16:07:38","slug":"basketball-bracketology-2017-tax-brackets","status":"publish","type":"post","link":"https:\/\/hrbcomlnp.hrblock.com\/tax-center\/irs\/tax-brackets-and-rates\/basketball-bracketology-2017-tax-brackets\/","title":{"rendered":"Taxes, Basketball, And Bracketology – 2017 Tax Brackets"},"content":{"rendered":"

This is March, when you hear the word \u201cbracket,\u201d what comes to mind first? If it\u2019s the NCAA tournament, you are not alone. But this is also tax filing season, and many of us are also thinking about our own tax bracket. All it takes is $1 of income to bust your bracket \u2013 but that doesn\u2019t mean you lose the whole game!<\/p>\n

With the NCAA\u2019s tournament \u2013 the \u201cBig Dance\u201d \u2013 you lose one game and you\u2019re out (which could also be said for your bracket). When it comes to taxes, though, only your\u00a0marginal<\/em>\u00a0income determines which bracket you\u2019re in. For example, if you\u2019re a single taxpayer, and your taxable income (not\u00a0<\/em>just your salary or wages!) is $60,000, you are practically at center court in the 25% tax bracket. This means that every additional (marginal) dollar of\u00a0taxable ordinary income<\/em>\u00a0is taxed at 25%.<\/p>\n

To clarify what this means, it helps to know how your tax liability is determined. In the basketball tournament, it doesn\u2019t matter what the score is \u2013 you either advance to the next bracket, or you\u2019re out. The federal tax bracket<\/a> system keeps you in the game \u2013 you just have to pay a little more when you advance.<\/p>\n

The current federal income tax system<\/h2>\n

The federal individual income tax system is currently\u00a0progressive<\/em>, meaning that as your income rises, the\u00a0tax<\/em>\u00a0rate <\/em>associated with that additional income might also rise if the additional income moves you into the next federal tax bracket.<\/p>\n

So, if you\u2019re a single taxpayer with taxable income of $60,000, you\u2019re in the 25% bracket. You\u2019ll reach the 28% bracket if your taxable income exceeds $91,900 (in 2017). As you move up in income, the\u00a0rate\u00a0<\/em>of tax on the next dollar of income is the same until you reach the next bracket.<\/p>\n

It\u2019s important to note that not all of your income gets taxed at that higher rate \u2013 only your marginal, or additional income. Your taxable income is stacked, layer upon layer, at each rate in the progression of tax brackets, as shown in the chart. Let\u2019s take a 60-second walk down the court to check this out.<\/p>\n

For example, suppose you are a single taxpayer with taxable ordinary income of $60,000. Your total federal income tax is $10,740. Your tax software, tax preparer, or tax table might produce a slightly different result within a dollar or two, but if you calculated your tax by hand, how is this number calculated?<\/p>\n

Let\u2019s start by taking a look at the tax brackets. Here are the 2017 tax brackets for a single taxpayer (See\u00a0Pub. 17<\/strong><\/a>, Schedule X, page 266):<\/p>\n

\"2017<\/p>\n

Sweet 16<\/h2>\n

The first bracket of taxable income \u2013 let\u2019s call this the Sweet 16 \u2013 is taxed at 10%. Of your $60,000 taxable income, $9,325 is taxed at 10%, resulting in $933 in taxes, rounding in dollars ($9,325 \u00d7 10%). The rest of your taxable income ($50,675, or $60,000 \u2013 $9,325) keeps advancing to higher brackets.<\/p>\n

Elite 8<\/h2>\n

The next bracket \u2013 let\u2019s call this one the Elite 8 \u2013 is taxed at 15%. This bracket begins at $9,326 and ends at $37,950. The next $28,625 of taxable income fills this 15% bracket, generating a tax of $4,294 [15% x ($37,950 – $9,325)]. The remaining taxable income of $22,050 ($50,675 – $28,625) advances to the next bracket, the Final 4, a bracket where dollars that make it this far are taxed at 25%.<\/p>\n

Final 4<\/h2>\n

So, your marginal tax is the 25% tax bracket (you made the Final 4!), because your last dollar of taxable income falls within this bracket. Your very next dollar of taxable income will be taxed at 25%, and you will remain in this bracket until you reach $91,901 of taxable income, at which point you will have \u201cgraduated\u201d to the 28% tax bracket (this is, after all, a graduated income tax!).<\/p>\n

By the way, your average tax rate (also called the\u00a0effective<\/em>\u00a0tax rate) is calculated as your total tax divided by taxable income. In this case, $10,740 \u00f7 $60,000, or almost 18%.<\/p>\n

Let\u2019s recap how your $60,000 of taxable income fares in this tax tourney (tax is shown in parentheses):<\/p>\n\n\n\n\n\n\n\n
\u201cBracket\u201d<\/td>\nTaxable Income<\/td>\nBracket Tax Rate<\/td>\nBracket Tax<\/td>\n<\/tr>\n
Sweet 16<\/td>\n$9,325<\/td>\n10%<\/td>\n$933<\/td>\n<\/tr>\n
Elite 8<\/td>\n$28,625<\/td>\n15%<\/td>\n$4,294<\/td>\n<\/tr>\n
Final 4<\/td>\n$22,050<\/td>\n25%<\/td>\n$5,513<\/td>\n<\/tr>\n
<\/td>\n$60,000<\/td>\n18%<\/td>\n$10,740<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Fortunately (or unfortunately, depending on your perspective), you don\u2019t have any more taxable income to advance to the Championship round. But don\u2019t worry \u2013 there\u2019s always next year<\/p>\n","protected":false},"excerpt":{"rendered":"

This is March, when you hear the word \u201cbracket,\u201d what comes to mind first? If it\u2019s the NCAA tournament, you are not alone. But this is also tax filing season, and many of us are also thinking about our own tax bracket. All it takes is $1 of income to bust your bracket \u2013 but […]<\/p>\n","protected":false},"author":588,"featured_media":35653,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[25,56],"tags":[],"class_list":["post-29744","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-irs","category-tax-brackets-and-rates"],"acf":[],"yoast_head":"2017 Tax Brackets & March Madness | H&R Block<\/title>\n<meta name=\"description\" content=\"What do 2017 federal tax brackets and March Madness have in common? The Tax Institute Director Gil Charney weighs-in. 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