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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121572  
Subject: Re: Penalty for reaching next tax bracket? Date: 3/22/2007 4:20 PM
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Hello. I am still trying to get a grasp on how much money I want to earn this year--or rather how many hours, if any, I want to work once I hit a highly taxed bracket.

In weighing the incentive not to work once the higher bracket kicks in, I was looking to see where that line is by checking the brackets.

http://www.irs.gov/formspubs/article/0,,id=150856,00.html

It appears that if I earn enough to push my income over $61,300, I would be immediately penalized to the tune of around $7000 on that very next dollar with the tax jumping from $1510 plus 15% to $8440 plus 25%. This according to the Married/joint table.

This makes it seem as if earning $61,299 is considerably more profitable (and easier time-wise) than earning $61,300. Since I am 'in the neighborhood' of the $61,300 figure after adjustments (taxable income), would it be wise to plan to come in just under that bar?


You're misunderstanding the table. Your tax on $61,299 is $1510 plus 15% of (61,299 - 15,100). If you do the math you will see that this is $8440. All that happens when you pass the magic number of $61,300 is that your next dollar of earnings is taxed at 25% instead of 15%. Nothing happens to the dollars that have already been taxed.

Ira
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