Technically there are a number of tax brackets, we usually hear about three: the poor, middle class, and wealthy. Naturally this is the easiest way to look at tax brackets because it mirrors the perceived distribution of wealth in the nation. For our purposes, we will focus on these three to keep it simple.
The lowest tax bracket is the easiest to examine in terms of tax breaks and wages earned because of the small amount of money that is earned by those in the bracket. Most of the tax breaks are very well known, such as the Earned Income Tax Credit. Many states have tax credits aimed at the poor, and they have drawn criticism for actually being used by the wealthy. Running a search on the internet yields several pages worth of these articles, but again, this site is focused on the national level. If you would like to know more about tax breaks for lower income families, visit your states tax revenue website for more details. Many have a way to submit questions to get more exact information.
Here we will look at lowest income tax brackets on the national level.
The Lowest Percents
The lowest income tax brackets, considered the poorest of our nation, and at a maximum this bracket pays 10%. The pay ranges according to how the tax payer files. The following table presents the breakdown for those who pay 10% and 15% for 2011.
Pay and Tax According to Filing Status For Lowest Tax Bracket
Maximum Annual Earnings
10% of Maximum Earnings
|Married Filing Jointly||$17,000||$1,700|
|Married Filing Separately||$8,500||$850|
|Head of Household||$12,150||$1,215|
Pay and Tax According to Filing Status for Second Lowest Tax Bracket
Range of Annual Earnings
|Single||$8,501 – $34,500||$851 – $5,175|
|Married Filing Jointly||$17,001 – $69,000||$1,701 – $6,900|
|Married Filing Separately||$8,501 – $34,500||$851 – $5,175|
|Head of Household||$12,150 – $46,250||$1,215 – $4,625|
Keep in mind that your tax bracket is rounded to the nearest whole dollar. This means if you earn $8,500.50 or more and file under Single then you are considered to be in the 15% bracket.
The range is determined after all of the credits and breaks are factored into your annual salary. So if you and your spouse earn $18,000 but qualify for over $1,000 from the Earned Income Tax Credit and file a joint return, you will be in the lowest income bracket. If you earn $9,000 and your spouse $9,000 and you decide to file separate returns, you will likely qualify for a smaller Earned Income Tax Credit and may end up paying with the 15% tax bracket. For most families filing a joint return will allow for better tax credits, which could bring you to a lower tax bracket, or at the least will mean you will pay less in taxes.
Their Fair Share
So why is it that the news claims that the poorest do not pay their fair share of taxes? How is that possible if people pay according to tax brackets? For the lowest and highest tax brackets this is actually relatively easy, but for different reasons. The lowest brackets have a number of programs setup to help them, such as food stamps and special billing for utilities. They have credits created for them to help alleviate some of the burden.
Really? So how is that fair that they don’t end up paying much, if any in taxes?
Remember, they pay taxes over the year just like everyone else; it is automatically deducted from their paycheck. At the end of the year they stand a much better chance of getting a refund, which means that they will pay less than their 10 or 15%. They do pay over the year though, so that money has not been available to them. Now if it seems unfair, take a few minutes to consider the cost of living with the earnings at the 10 or 15% tax bracket.
Month to Month Scenario
A person who files a Single return earns $8,000 a year. That is less than $670 a month, and less than $155 a week. Most likely this person does not have insurance, so no money is taken out a paycheck for benefits, like 401K, life insurance, or medical insurance. We will also suppose this person does not have a car, removing car payments, gas, and car insurance from the equation.
At 10%, this person pays $67 a month in taxes. If that person pays $400 a month on rent, and averages $50 a month for power, $20 for water, and $20 for gas, and spends $150 a month on food, the person is going to be wondering where the other $37 a month is going to come from. And remember, we have not calculated the state tax, so this person had better live in Washington, Florida, or one of the other hand full of states that don’t have a state tax.
Realistically, prices for everything would be much higher. This is why so many more breaks, credits, and financial aid are made available.