Archives for March 6, 2017

2017 IRS Federal Income Tax Brackets Breakdown Example (Married No Kids)

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

In a continued attempt to better understand the 2017 federal income tax brackets, here is a graphical breakdown of a simple scenario for a married filing joint couple with no dependents. Again, I’ll try to explore the differences in terms such as gross income, taxable income, marginal tax rate, and effective tax rate. See also:

2017 federal income tax rates for married joint filers.

2017tbrac_mfj

Simple example. Let’s say your combined gross income is $120,000 a year. You are a married couple with no dependents and both earn $60,000 gross income. You are both employees that receive W-2 income only (i.e. neither are self-employed). You don’t have any additional income sources like interest, capital gains, rents, etc. You don’t have any extra deductions like IRA/401k contributions or mortgage interest. You live in a state with no state income tax.

Gross income. Let’s start with your annual $120,000 gross income. You each get a personal exemption of $4,050 in 2017. You also get something called the standard deduction which is $12,700 for married filing joint in 2017. Since you don’t have a lot of itemized deductions, you use this standard deduction.

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The first 20,800 of your gross income is not taxable. Without doing anything special at all, your $120,000 in gross income is now only $99,200 in taxable income after personal exemptions and the standard deductions. If you’ve already done your taxes, your taxable income should be line 43 on Form 1040, line 27 on Form 1040A, and line 6 on Form 1040EZ.

The first $18,650 of taxable income is subject to a 10% tax rate. Shave off 10% of $18,650 and put that on your tax bill ($1,865). The remaining $80,550 of taxable is moved onto the next tax bracket.

The next $57,250 in taxable income is subject to a 15% tax rate. Shave off 15% of $57,250 ($8587.50) and add that to the existing $1865. The tax bill is now $10,452.50. The remaining $23,300 of taxable is moved onto the next tax bracket.

The next $77,200 in taxable income is subject to a 25% tax rate. However, we only have $23,300 left. So we shave off 25% of $23,300 ($5825) and add that to the existing $10,452.50. The total tax bill is now $16,277.50.

In this example, this 25% is your marginal tax bracket. If you earned another $1, it would be taxed at this marginal rate of 25%.

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Payroll taxes. These aren’t technically federal income taxes, but you must each pay a Social Security tax (OASDI) of 6.2% and Medicare payroll tax (HI) of 1.45% of your gross income. That’s $3,720 a year for Social Security and $870 a year for Medicare. You both earn $60,000 gross and don’t exceed the income caps. (Your respective employers pay the same amount.)

Overall effective tax rate. You paid $16,278 in federal income taxes on $120,000 of income, for an average or overall effective tax rate of 13.6%. Again, you also paid 7.65% in payroll taxes. You see that two married people earning $60k each pay the same percentage in tax as a single filer earning $60k.

The “marriage penalty” usually occurs when two individuals both with either low- or high-incomes marry. The “marriage bonus” usually comes about when the incomes are quite different. For example, a single person earning $120k in gross income would pay an extra $7,000 in income tax vs. married earning $120k.

Married earning $60k gross annually. Alternatively, a married couple earning $60k gross would pay roughly $3,000 less in income tax vs. single earning $60k (and only reach the 15% marginal tax bracket). Here’s that visualization:

2017t_brackets_mfj60

Here’s a chart from OurWorldinData.org that shows how the average tax rate changes with taxable income (2016, married filing joint).

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LivingSocial: BJ’s Wholesale Club Membership Discount

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

bjslogoLivingSocial has a new deal: $50 for a 1-Year BJ’s Membership + $20 BJ’s Gift Card & $55 in Coupon Savings. Offer expires on 3/12. New members only (you could get your spouse or partner to sign-up). Valid at all BJ’s Wholesale Club locations (East coast mostly). The $55 in coupon savings includes:

$5 off any purchase of $50 or more
$5 off any fresh produce purchase of $10 or more
$5 off any Berkley Jensen purchase of $10 or more
$5 off any fresh bakery purchase of $10 or more
$5 off any apparel purchase of $10 or more
$10 off any purchase of $100 or more
$5 off any fresh meat purchase of $10 or more
$5 off any Wellsley Farms purchase of $10 or more
$5 off any frozen purchase of $10 or more
$5 off any health & beauty purchase of $10 or more

If you count the $20 BJ’s gift card, the $50 membership price goes to effectively $30. Additionally, if you can use the $5 off any $50 purchase and $10 off any $100 purchase without changing your shopping habits, that bring the memberships down to effectively $15 a year. That’s not counting the remaining $40 in category-specific coupons.

I am not very familiar with BJ’s Warehouse so I can’t provide a comparison, but this promotion does coincide with Costco announcing a membership price hike from $55 to $60 annually effective 6/1/17.

You can also combine this offer with a cashback shopping portal bonus. Many offer new customers bonuses if you make a qualifying purchase, including eBates ($10 bonus), TopCashBack ($10 bonus, you see it after entering e-mail), and BeFrugal ($10 bonus). I have cashed out of all of these before.

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