Personal Income tax components include Federal, State and FICA. We provide a summary of Federal tax brackets and example calculations for an individual with $100K and $200K AGI.
Income tax has three components: Federal, State and FICA. Taxable income for Federal taxes is either Ordinary Income or Long-Term Capital Gains (LTCG). The Ordinary Income portion has 7 tax brackets from 10% to 37% based on taxable income level and filing status. These and other changes brought about by the TCJA law are discussed in our blog “Key Aspects of the TCJA Law.”
The income levels for Married Filing Jointly (MFJ) are double that of Unmarried Individual (Single) except for the top tax bracket. Tax disparities such as these between two people filing as single vs. married is referred to as marriage penalty. We used Singles in our examples below, however, MFJ filers can easily apply it by considering them as two Single filers.
You can see how close together the bottom 5 tax brackets really are. For example, Singles with more than $200K in taxable income are already pushed into the top 2 tax brackets. The marginal tax rate is also your highest tax bracket at which the next dollar of income will be taxed. It is going to be higher than the average tax rate.
LTCG are gains from investments held for a year or longer and they enjoy a lower tax rate of 0-20%. However, an ACA (Affordable Care Act) surtax of 3.8% is added for investment income if MAGI (Modified AGI) is >$200K/$250K for Singles/MFJ.
California State has an income and disability insurance tax. States do not offer a lower tax rate for LTCG. FICA taxes include Social Security and Medicare taxes. Social Security tax rate is 6.2% for incomes up to $133K, thus capping the total tax at about $8K. Medicare tax rate is lower at 1.45% but is applied on the entire income. Medicare also has a 0.9% ACA surtax for Wages >$200K/$250K for Singles/MFJ.
Here we calculate the income tax for Singles with a $100K AGI and $200K AGI. State taxes also use the AGI calculated from the Federal tax return. Taxable income is AGI minus Standard Deduction for Federal taxes and AGI minus Exemption for CA tax. Please read “Income Tax Calculation Flow and Deductions” for a step by step explanation of Federal tax calculation. The average tax rates for the $100K and $200K AGI examples are 30% and 35% respectively.
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