How Do I Use Tax Brackets to Calculate Taxes

Caryn Asked:

I just read your article about this years tax laws and brackets. I just saw my accountant and according to my “bracket” it seems to me I’m paying too much in taxes. Unless I’m misunderstanding the formula of 24%(which is my bracket) of my total income over the 82,500. I understand this is in addition to $14,500.00 Would you mind confirming for me how that last part is calculated? Thanks so much.

The Progressive Tax System Can Be Confusing

As a preface, I am going to assume you are filing as a Single filer based on the $82.5k cutoff for the 24% tax bracket. So all of the comments are based on this assumption. Federal taxes are progressive taxes, meaning you start getting taxed at a low rate, then, as you earn more money, the additional money you earn is taxed at a higher rate.

2018 Single Tax Brackets:

  • 10%   $0 to $9,525

  • 12%   $9,526 to $38,790

  • 22%   $38,791 to $82,500

  • 24%   $82,501 to %157,500

  • and so on.

How the Calculation Works

The way the calculation works, everyone pays the same taxes on the first pool of money (approximately the first $9k) they earn, no matter how high their annual income is. Then on the next pool of money is taxed at the next rate. The pools of money are defined by the tax brackets, as can be seen in the tax brackets below.

For a Single filer in 2018, you would pay 10% tax on the first $9,525 you earn. Then you would pay a 12% tax on the next $29,265 ($38,790 less the $9,525 you already paid taxes on). When you reach $82,500; this progressive calculation comes to a tax of approximately $14,080.

The money you earn above $82,500 is then taxed at 24%. So, as an example, if you earned $100,000 then there is $17,500 ($100k less $82.5k) taxed at 24%. This comes to $4,200 in our example. This $4,200 is then added to the $14,080 to arrive at a total tax liability of $18,280.

Accountant Error or Other Factors May Be At Play

Assuming this is how you are calculating the tax, if you are still thinking you are overpaying, there could be a few things at work. While the chances you accountant made a mistake are always a possibility, consider other explanations as well when looking at the return they prepared.

Consider if You Might Have a Different Filing Status

First, if you are going through a divorce or have some other circumstance which would benefit you filing as married filing separately, then the tax brackets will be different than the Single tax brackets, which can definitely cause you to owe more taxes.

Consider Hidden Income Could Increase Taxes

Another factor could be there are other elements of your tax return which are causing additional taxes. The sale of a property, cashing in on investments, mutual fund holdings, stock incentive programs at work, and other forms of 'income' can increase your taxes.

Don’t Forget About Alternative Minimum Tax

Finally, you could be subject to the Alternative Minimum Tax (AMT). This is the least likely scenario as the tax reforms have made the AMT hit higher income individuals rather than a lot of the middle-income people it used to hit. Even still, it is possible.

Ask For Clarification

Without seeing the actual return I can't comment on whether you are paying too much or what might actually be causing the problem. But remember, you are the customer with your accountant. Ask your tax preparer to explain why the taxes are coming out the way they are. They should be able to explain it clearly to you in a way you understand. If they can't, seek a second opinion from a similarly qualified professional to help you make your decision.

You can read more about the tax brackets at IRS Publication 501


Joshua Escalante Troesh is a tenured professor of Business at El Camino College and the founder of Purposeful Finance. He is also the owner of Purposeful Strategic Partners, a fiduciary and fee-only financial planning firm and a Registered Investment Advisor. He can be reached for comment at