2017 Income Tax Brackets & Marginal Tax Rates

Understanding income tax brackets and marginal tax rates will provide you with the knowledge you need to make better tax planning decisions throughout the year. In all of these calculations we are using Taxable Income.

The Individual Income Tax Return (1040) flows as follows:

Gross Income

+/- Adjustments –> Sch B, C, D, E, F


= Adjusted Gross Income (AGI)

(Deductions)- Itemized (Sch A) or Standard Deduction

(Net Exemptions)


= Taxable Income

*Tax Rate ( which differs for each income tax bracket as outlined below)


=Tax Liability

(Credits)

+Self Employment Tax

+ AMT

(Withholdings)

(Prepayments)


= Tax Due

As you will see in the example below jumping to a higher income tax bracket does NOT mean all of your income will be taxed at a higher tax rate. Simply put the income you make over your current marginal tax bracket is taxed at the new rate.

Example  : A Taxpayer has $85,000 of Taxable income in 2017. Below we will determine the total tax liability if the taxpayer is :

  • A Single Individual
  • A Married Couple

To determine our total income tax liability and our marginal tax rate we need to access the IRS website and pull the 2017 brackets.  Please see Page 90 in the 2017 1040 draft located here IRS 1040 Sept 29th 2017 DRAFT- not final as of now it looks like the brackets in this draft will remain.
Using the 2017 brackets I created the tables below.

122817_0229_2017IncomeT1.png

  • $85,000 Taxable Income would fall in the 25% tax bracket.
    • To calculate the tax liability take $5,226.25 + (25%* ( 85,000-37,950))
      • $5,226.25+ 11,762.50 = $16,988.75 tax liability.

122817_0229_2017IncomeT2.png

  • $85,000 Taxable Income would fall in the 25% tax bracket.
    • To calculate the tax liability take $10,452.50 + (25%* ( 85,000-75,900))
      • $10,452.50+ 2,275 = $12,727.50 tax liability.
    • Compare this to our single filer above, we have a tax savings of ($16,988.75-12,727.50) $4,261.25
      • This is because ($85,000-$37,950) $47,050 was taxed in the 25% bracket as a single individual.
      • As a married couple only (85,000-75,900) $9,100 is taxed at the 25% bracket rate, the rest went to fill up the larger MFJ 15% taxable income bucket cap of $75,900 v.s. the $37,950 for single filers.
    • Note: Because more income is allocable to each tax bracket MFJ has a favorable tax bracket compared to the individual tax bracket.
      • However, this is unfavorable when you factor two married individuals each with $85k in Taxable Income.
        • Tax due on $170,000 for a MFJ couple =
          • $29,752.50 + (28% (170,000-153,100))
          • $29,752.50 + $4,732 = $34,484.50 Tax Liability
            • That same unmarried couple filing individually would owe $33,977.50 as shown above in the single tax bracket analysis
              • A tax advantage of $507.

I have also attached the Head of Household and Married Filing Separately Taxable Income Brackets and Rates for 2017 below.

In other posts I will highlight the Individual Income Tax Return (1040) and dig deeper into the line items above Taxable Income such as Gross Income, Adjustments, Deductions, and Exemptions.

Head of Household 2017 rates

MFS 2017

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