Why I Can't Guess Your Tax Bracket

Earn a higher income and you'll almost always pay higher federal income taxes. That's pretty clear from looking at a table of income tax brackets. But just how much higher has become a really hard thing to estimate, because those brackets don't tell the whole story. 

The reason is that the tax code is full of tax breaks and boosters that are based on your income level. Earn a bit more, and you might lose a credit or deduction, or have additional tax slapped on some of your income. These things increase your tax bill even more than the basic tax-rate table predicts.

I see the issue frequently when running tax projections for clients, using tax-planning software. The increase in tax from additional income is something quite different from the nominal amount listed in the tax bracket table.

To see some examples, take a look at the chart below, which lists some tax items that have rules based on income levels. In the chart, the green shaded areas are income ranges where you qualify for the listed benefit or credit. The red shaded areas are the income ranges where a tax applies, or a phase-out of a benefit occurs (effectively, increasing your tax). Which income? Many of the items listed below reference your Adjusted Gross Income, but some use taxable income or an income figure calculated only for that specific item.