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Taxes Individuals Pay

Citizens Guide to Economics Dr. Katie Sauer

1. Federal Taxes Income Tax


Payroll Tax The Social Security tax is also called the FICA (Federal Insurance Contributions Act) tax. (6.2%)

The Medicare Tax is used to provide medical benefits for certain individuals when they reach age 65. (1.45%) Estate Tax Gift Tax Gasoline Tax (18.4cents per gallon)

Calculating your Federal Income Tax


1. compute gross income - wages, salaries - interest, dividends, rental income

2. compute adjusted gross income subtract off: - retirement savings contributions - alimony - educator expenses - contributions to HSAs - job-related moves expenses - interest paid on student loans - if self-employed: - health insurance premiums - 50% of paid payroll taxes

3. Subtract any exemptions - fixed amount of money that is deducted for the taxpayer, spouse, dependents - indexed for inflation 2011: $3,700 per person - if you are someones dependent, then you cannot claim your own personal exemption - cant claim as a dependent anyone who files a joint tax return with a spouse - spouses filing a joint return can claim two personal exemptions

Exemptions used to be phased out for very high income levels. - personal exemption phaseout (PEP) These limits will not apply for the year 2010, 2011 or 2012. The limits will come back in 2013 (unless further legislation is passed).

Income Range for PEP (2009)

Filing Status Phaseout Begins Married Filing Jointly 250,200 Qualifying Widow(er) 250,200 Head of Household 208,500 Single 166,800 Married Filing Separately 125,100

Phaseout Ends 372,700 372,700 331,000 289,300 186,350

4. Decide on deduction type


Standard Deduction: $11,600 for married couples filing jointly $5,800 for singles $5,800 for married individuals filing separately $8,500 for heads of household additional standard deduction for blind people and senior citizens $1,150 for married individuals $1,450 for singles and heads of household

Itemized Deduction:
- medical and dental expenses exceeding 7.5% of AGI - other taxes paid (state, local income tax)

- interest on mortgage
- charitable donations - casualty and theft losses - union dues and job travel expenses

According to the IRS, 2 out of 3 tax payers takes the standard deduction . (IR-2010-127, Dec. 23, 2010)

5. Compute Federal Income Tax Owed Here are the tax brackets for a single person for 2011: Marginal Tax Tax Bracket Rate over but not over 10% $0 $8,500 15% $8,500 $34,500 25% $34,500 $83,600 28% $83,600 $174,400 33% $174,400 $379,150 35% $379,150

Suppose you are single in 2011 and your AGI is $50,000.


Marginal Tax Rate 10% 15% 25% 28% 33% 35% Tax Bracket over $0 $8,500 $34,500 $83,600 $174,400 $379,150 but not over $8,500 $34,500 $83,600 $174,400 $379,150

On the first $8500, you pay 10% in taxes. 8500 x 0.10 = 850

Marginal Tax Rate 10% 15% 25% 28% 33% 35%

Tax Bracket over $0 $8,500 $34,500 $83,600 $174,400 $379,150

but not over $8,500 $34,500 $83,600 $174,400 $379,150

On the next portion of income, you pay 15% in taxes. 34500 8500 = 26000 26000 x 0.15 = 3900

Marginal Tax Rate 10% 15% 25% 28% 33% 35%

Tax Bracket over $0 $8,500 $34,500 $83,600 $174,400 $379,150

but not over $8,500 $34,500 $83,600 $174,400 $379,150

On the next portion of income, you pay 25% in taxes. 50000 34500 = 15500 15500 x 0.25 = 3875

The total amount you pay in taxes is:


= (0.10)(8500) + (0.15)(34500-8500) + (0.25)(50000-34500) = 850 + 3900 + 3875 = 8625

The marginal tax rate is the tax rate paid on an additional dollar of income.

If your AGI is $50,000 and then you earn one extra dollar of income, that dollar is taxed at a rate of 25%. Your current marginal tax rate is 25%.

The average tax rate is the total taxes paid, divided by total income. = 8625 / gross income

Suppose your gross income is $60,000.


= 8625 / 60000 x 100% = 14.4% is your average tax rate

2. Colorado State Taxes for Individuals


Income Tax (4.63%)

Sales Tax (2.9%)


Consumer Use Tax (purchases that did not include Colorado sales tax internet, mail order, phone) (2.9%) Estate and Trust Income Tax (4.63%)

Gasoline Tax (22cents per gallon) Cigarette Tax (4.2cents per cigarette, 2.9% per pack, 40% on other tobacco products) Alcohol Tax (8cents per gallon beer/cider, 7.33cents per liter wine, 60.26cents per liter of spirits)

3. Local Taxes and Fees Motor Vehicle Registration Property Tax City Sales Tax

4. Special District Taxes

RTD levies a sales/use tax of 1.0% .


The Football District has a 0.1% sales/use tax. The Scientific and Cultural Facilities District has a 0.1% sales/use tax.