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What I want to do in this video
is to try to get a good understand
of how the U.S. Federal Income Tax Rate Schedule works
and also what people mean
when they say, "tax brackets",
or what does it mean to be in a "tax bracket"?
So let's say that I make $100,000,
and I'm single and I'm not going to go
into the deductions or anything fancy like that.
So let's say I make $100,000 in a given year,
and these numbers will change as the tax code changes,
but the general idea is the same thing,
although the details might change.
So the way the rate schedule works
is that the first $8,350 of my $100,000
will be taxed at 10%.
So the first $8,350 will be taxed at 10%,
so I'll be paying, well that's pretty easy to calculate,
$835 [in taxes] on that first $8,350.
Now the next $25,600,
or from $8,350 to $33,950,
that will be taxed at 15%.
So this amount right over here,
I will have to pay 15% on that.
So the difference between $33,950 and $8,350
is $25,600.
$25,600 x 15%. I'll calculate it all at the end
using a calculator.
Now, the next $48,300
is going to be taxed at 25%.
So let me draw that over here.
This next piece is going to be taxed at 25%.
So this is the difference between
$82,250 and $33,950, that's $48,300,
so it's going to be $48,300 x 25%.
And then finally, the remainder,
the amount above $82,250,
since I don't get into the next bracket above that,
this part right here
is going to be taxed at 28%.
So this part right over here
is going to be taxed at 28%.
Let me get my trusty calculator out
to figure out what that is.
So if that's going to be taxed at --
so the difference between $100,000 and $82,250.
So $100,000 - $82,250 = $17,750
So it is $17,750 x 28%,
and now I can use the calculator
to calculate all of these.
So it's going to be,
let's do it all at once,
$17,750 x 28%
plus
$48,300 x 25%
plus
$25,600 x 15%
finally, plus $835.
I'm going to pay $21,720.
So the sum of all of these --
in total, I'm going to pay $21,720.
And I want to make sure that
you don't have the misconception -
notice, you only pay the 28%
on the incremental amount,
when you enter that bracket,
you don't pay this 28%
on the entire $100,000,
just on the increment above $82,250,
you don't pay the 25% on the entire amount,
just on the increment between $32,950 and $82,250.
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