Finance and capital markets
- Basics of US income tax rate schedule
- Tax deductions introduction
- AMT overview
- Alternative minimum tax
- Estate tax introduction
- Tax brackets and progressive taxation
- Calculating state taxes and take home pay
- Marriage penalty
- Married taxes clarification
Calculating state taxes and take home pay
Created by Sal Khan.
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- How many states have a state income tax? Has introducing a state income tax been good or bad for those states?(14 votes)
- http://taxfoundation.org/article/2013-state-business-tax-climate-index has a list of various tax characteristics of states. You really need to consider the total tax burden (not just income tax) to judge the economic impact. The states with high taxation have high costs of living, which means you can afford to buy less with the same amount of work. Most people think that's bad since they like to be able to do things with their own money.
The result? People leave big-government states and move to small-government states, in order to be more free and have more disposable income. See http://www.governing.com/gov-data/census/2010-census-state-migration-statistics.html which shows where people are moving, and you can line it up with the tax rankings on the first URL.(16 votes)
- Do all states determine use your gross income for determining taxes or do some use your take-home pay after federal taxes?(13 votes)
- What is the point of taxing people anyway? It doesn't seem to benefit the person being taxed whatsoever :((1 vote)
- Taxes are used to benefit society. For example, they pay for our defense, to support schools, to pay for police and fire protection, to build roads, to support scientific research, etc., etc. It would be a very unusual person who hasn't benefited from one or more of these things, all of which are funded from taxes.(31 votes)
- Why does the standard deduction exist? And what are the benefits? Is the standard deduction the only choice other than itemizing deductions?(8 votes)
- The main reason for standard deduction is to avoid keeping records of your purchases. Additional benefits include less complicated paperwork, and less knowledge necessary to fill it (or less money to pay somebody else to do it). The drawback is that when you make large purchases you will likely get higher deduction doing the itemizing. To answer your final question, no, as far as I am aware you can only choose between itemizing or not. Although other countries do have other means of reducing tax burdens than deductions.(9 votes)
- Correct me if I'm wrong, but I think state and local taxes paid are deducted from gross income before federal tax is calculated. In the example, federal taxable income would be 50000 minus 1916 or $48084. My accountant always has me make my Jan. state and local payments in Dec. so I can reduce my federal tax due in Apr.(6 votes)
- You are correct, you can deduct state and local taxes from federal income taxes. However, in order to do so, it must be through the itemized deduction. Because the standard deduction in this case is greater than the itemized deduction—which would only include the payment of state and local taxes—the standard deduction was selected. This may not hold true in practice with other deductions that you would have in your income.(5 votes)
- What is the difference between federal and state tax? To be more precise: Where have you to pay this tax, and where that?(4 votes)
- The difference is not only in the percentages but in that federal tax goes to the federal government which they can use in any way for the common good of the country: military, paying off debt, federal employee salaries, etc. and the state tax goes to your state's government to provide things for the common good of the people specifically in your state such as building roads, paying state employee salaries, etc.(9 votes)
- Does the state tax take from you salary before or after the federal tax takes from you?(4 votes)
- The simple answer is that a state computes its taxes as a percentage of a person's income the same way as federal taxes are computed. There are lots of special cases that can vastly complicate this simple answer, such as the ability of some people to deduct what they pay in state income taxes from their income when computing their federal tax.(5 votes)
- It sounds like your income is getting taxed twice via the Federal Income Tax and then the State Income Tax. Is there such thing as a State Tax reduction to your Federal Income Tax or a Federal Income Tax reduction to your State Tax? This would seem to get rid of the double taxation scenario.(2 votes)
- You can (currently) deduct your state tax payments from your federal taxes.(4 votes)
- Where I can find the previous video you mention in this one (with a calculation of federal taxes)? The previous video in this unit is "Tax brackets and progressive taxation".(3 votes)
- i know this is years late, but for what it's worth:
- At00:03Sal starts talking about state income taxes. Is that the same thing as sales tax?(2 votes)
Now let's figure out how much the single person making $50,000 a year would pay in state income taxes, assuming that they're in a state that has income taxes. And this right here are the current tax brackets for my state and every state will have different income tax brackets and they're likely to change year after year, but the important thing to take away is just how all of this is calculated. So at the state level, you still get ... you still, or at least at the state I'm in, there is a standard deduction. It's $3,769 for a single filer, for a single person. And instead of having a personal exemption which reduces your taxable income, which is we saw at the federal level. They have a tax credit, a personal tax credit which essentially just a credit on your taxes. So this doesn't reduce your taxable income. This can actually be used against the actual taxes that you owe. So first, let's think about what our taxable income is in my state. So I'm starting with $50,000. $50,000 is my gross income and then I have a standard deduction in my state. A standard deduction in my state of 3,769 ... $3,769 gets me to taxable income in my state of $46,231 or $46,231. Now if you look at these brackets, it looks like we are falling into this 8% bracket right over here, but just as we've said in this ... in the federal example, that does not mean we pay 8% on all 46,000 ... $46,231. It means we only pay the 8% on the increment above $37,005. For the rest of the brackets, we pay 1% on the first 7,000 or for $7,124, 2% on the increment up to 16,980. So on and so forth. So let's calculate what that is. So we're going to pay ... We're going to pay 1% ... 1% on the first $7,124. Then to that, we're going to pay 2%. We're going to pay 2% on the increment up to $16,980 and that increment is $16,980 - $7,124 and then we are going to pay 4% ... We're going to pay 4% on the increment up to $26,657 and so that's that number minus 16,890 and then we're going to pay 6% ... We're going to pay 6% on the increment up to $37,005. So it's 37,005 - 26,657 and then, we're in the home stretch here, we're going to pay ... We're going to pay 8% on the increment ... on the increment above $37,005. So our taxable income, we already saw is 46,231. So it's 46,231 - 37,005. 37,005 bring us to ... Did I type all that in right? Let's see, 7 x 1% and then we have 2% x, yep that looks right and then we have 4%. I want to make sure I'm typing all this in correctly. And then 37,000 - 26,657 and then that's 6% and then 8% on that last increment. Drum roll, please. We get to $2,018 just based on the brackets right over here. So 2,000 ... So at the ... at the state level ... At the state level, it looks like we have $2,018 just based on our taxable income, but now we have to factor in this tax credit and a tax credit as opposed to a deduction, remember, a deduction or an exemption takes ... It reduces your taxable income. A credit goes directly against your taxes. So we were going to pay $2,018, but we get a credit of $102, which gets us to what? That gets us to 1,916 ... $1,916 in state taxes. So our total taxes, $9,754 at the federal level. $1,916 at the state level and so our actual take home pay is going to be ... Let's see, $50,000 is what we're starting with. We're going to pay ... We're going to pay at the federal level. I actually already figured out in the last video what we're left with, but at the federal level we're going to start off ... We're going to pay $9,754. Then at the state level, we're going to pay $1,916 getting us to $38,330 take home pay. $38,330 ... 330, is what I'm actually ... I'm actually going to be able to spend. And so based on this, we can figure out what an effective tax rate is, based on both the federal and state income tax. So we are ... If we look at that as a fraction of our original income, $50,000, we are left with 76.6% or another way of thinking about it is, roughly 23.4 or 23⅓ % of your income gets taken for taxes. That is your effective tax rate. So effective tax rate ... Let me write this. Effective ... Effective tax rate and then we're including both federal ... federal + state ... federal + state, just look at the number again. You're keeping 76.6, so you are paying 23.4 ... 23., actually, it looks like 23.34. So approximately 23, approximately 23%. If you want to think on a monthly basis, at $50,000 you thought ... So $50,000, you thought that you would be taking home $4,166 a month, but now you're actually going to be taking home $3,000 ... 38,330 / 12. You're only going to bring home about $3,000, a little bit under $3,200 a month. So you have to plan accordingly.