If you think 38.5 is insane, have I got news for you!
The current top US tax rate is 37%. ;)
But the rates are also graduated… which is something most people do not understand.
I’m going to use the “Married, Filing Jointly” numbers since that applies to my example:
10% - $0 to $22,000
12% - $22,001 to $89,450
22% - $89,451 to $190,750
24% - $190,751 to $364,200
32% - $364,201 to $462,500
35% - $462,501 to $693,750
37% - $693,751 or more
So you only get taxed at 37% if you make $693,751 or more. But that does NOT mean your tax liability is $256,687.87.
You would pay 10% on the first $22K, 12% up to $89,450, 22% up to $190,750… and so on.
If you make exactly $693,751 you are paying 37% on exactly 1 dollar of income, because the other $693,750 has already been taxed at lower rates.
So for my wife and myself, we combined for $169,000 last year.
10% - $0 to $22,000 - $2,200
12% - $22,001 to $89,450 - $8,094
22% - $89,451 to $190,750 - $17,501
Our total tax liability was $27,795 out of $169,000 or 16.45%. Even though we’re in the 22% bracket, we only paid 22% on the income from $89,451 to $169,000.
By the time you count in how much was with-held and how much our deductions were, we actually got a pretty nice refund last year.