OUR FEDERAL INCOME TAX PLAN TAXES: DAY 2

2012 TAX BRACKETS Marginal Tax Rate [6] [6] Single Married Filing Jointly or Qualified Widow(er) Married Filing Separately Head of Household 10%$0 to $8,700$0 to $17,400$0 to $8,700$0 - $12,400 15% $8,700 to $35,350 $17,400 to $70,700 $8,700 to $35,350$12,400 - $47,350 25% $35,350 to $85,650 $70,700 to $142,700 $35,350 to $71,350 $47,350 - $122,300 28% $85,650 to $178,650 $142,700 to $217,450 $71,350 to $108,725 $122,300 - $198,050 33% $178,650 to $388,350 $217,450 to $388,350 $108,725 to $194,175 $198,050 - $388,350 35%$388,350+ $194,175$388,350+

DEFINITIONS Single: if you are unmarried or "considered unmarried" on the last day of the year Married Filing Jointly: provides more tax benefits, but taxpayers will need to weigh the pros and cons Married Filing Separately: provides fewer tax benefits than filing joint returns, but taxpayers will need to weigh the pros and cons Head of Household: if you are unmarried, have cared for a dependent for over half the year, and paid more than half the cost of maintaining a home.

TAX REFORM…. Tax reform can be approached in a variety of ways. Some people worry that new tax plans may only help the rich and not the poor or the middle class. To understand proposed changes in tax plans, we must first understand our current tax plan.

CURRENT TAX TABLE If your taxable income is...Your federal income tax bracket is… $0 < x < $870010%

CURRENT TAX TABLE If your taxable income is...Your federal income tax bracket is… $0 < x < $870010% $8700 < x < $35,35015%

CURRENT TAX TABLE If your taxable income is...Your federal income tax bracket is… $0 < x < $870010% $8700 < x < $35,35015% $35,350 < x < $85,65025%

CURRENT TAX TABLE If your taxable income is...Your federal income tax bracket is… $0 < x < $870010% $8700 < x < $35,35015% $35,350 < x < $85,65025% $85,650 < x < $178,65028%

CURRENT TAX TABLE If your taxable income is...Your federal income tax bracket is… $0 < x < $870010% $8700 < x < $35,35015% $35,350 < x < $85,65025% $85,650 < x < $178,65028% $178,650 < x < $388,35033%

CURRENT TAX TABLE If your taxable income is...Your federal income tax bracket is… $0 < x < $870010% $8700 < x < $35,35015% $35,350 < x < $85,65025% $85,650 < x < $178,65028% $178,650 < x < $388,35033% $388,350 < x35%

FIXED RATE TAX PLAN Using a Fixed rate tax plan, calculate your federal income tax if your taxable income was: a. $5000 b. $21,150 c. $63,940

FIXED RATE TAX PLAN Using a fixed rate tax plan, compare the tax paid by someone who earns $$85,649 to that paid by someone who earns $85,650.

USING A FIXED RATE TAX PLAN, SKETCH A GRAPH OF TAX PAID VS. TAXABLE INCOME FOR THE FIRST TWO INCOME BRACKETS. Taxable Income Tax Paid $3000 $7549 $7550 $9000 $12000 $15000 $24000 $30649 $30650 $32000 $35000

USE THE RESULTS… Why is this tax plan is open to criticism and debate.

GRADUATED TAX PLAN Right now our tax plan is more graduated. This means that when you make more than $7550 you are charged 10% on the first $7550 and then 15% on the remaining amount (as long as you don’t make enough to enter another tax bracket).

USING A GRADUATED TAX RATE PLAN FILL IN THE TABLE AND GRAPH YOUR POINTS ON THE GRAPH ABOVE. (USE A DIFFERENT COLORED PENCIL/PEN). Taxable Income Tax Paid $3000 $8699 $8700 $9000 $12,000 $15,000 $24,000 $35,349 $35,350 $37,000 $40,000

EXPLAIN WHY… Explain why our actual tax tables are fairer than the first plan presented.

EXAMPLE 1: Calculate the amount John would pay in taxes if his taxable income in $20,000.

EXAMPLE 2: Calculate the tax that you would pay if your taxable income was $50,000.

EXAMPLE 3: Complete the chart to show how much tax Larry will pay if his taxable income is $450,000. Larry’s $450,000Income in the tax bracket Tax paid on that income Income over $388,850 Income between $178,650 and $388,850 Income between $85,650 and $178,650 Income between $35,350 and $85,650 Income between $8,700 and $35,350 Income between $0 and $8,700 Total Tax Paid: