Tax Brackets and Federal IRS Rates, Standard Deduction and Personal Exemptions

Updated InformationClick here for the latest tax bracket tables and rates and current tax season information.

2012 and 2011 tax rates stayed the same as 2010 levels thanks to an extension of the Bush-era tax cuts. This has been confirmed by the IRS with the release of 2012 tax tables. There was also good news in that the 2012 standard deduction and tax brackets will increase due to higher inflation, which means lower effective taxes on your current income (see explanation below).

Final figures for 2012 federal income tax brackets and standard deductions are shown below, with a detailed table by all filing status’ at the end of this article.

Higher Taxable Income Brackets and Standard Deduction = Lower Taxes. The good news with higher tax brackets and standard deductions is that your tax bill may actually drop a little because more of your income is taxed in the lower brackets. All things being equal, a married couple with taxable income of $100,000 should expect to pay $185 less in income taxes in 2012 thanks to inflation adjusted tax brackets. 

Adjusting tax brackets for inflation deals with the issue of “bracket creep,” where tax payers pay more and more taxes as their income (due to inflation) rises over time. More than 60% of taxpayers will also benefit from the higher standard deduction because they don’t have enough deductions to justify itemizing.

2012 Tax Brackets, Rates, Standard Deductions and  Personal Exemption

Taxable income vs Adjusted Gross Income. After writing this article I received a lot of questions/ comments on the different definitions of income. So I thought I would write this short excerpt to clear things up. The IRS defines Adjusted Gross income (AGI) as gross income (your income from all sources) minus “certain” adjustments. These adjustments include deductions taken for IRA contributions, qualified tuition, student loan interest, and exclusions for foreign housing, qualified bond interest, employer-paid adoption expenses, and domestic production activities. You can estimate your AGI by looking at your federal income tax return from previous years or through online tax software.

Taxable income, used for figuring your federal and state income, is the amount of income subject to income taxes and is found by subtracting your eligible deductions and credits from your adjusted gross income (AGI). In this article unless explicitly specified, all references to income are taxable income.

How to figure your effective and marginal tax rate: Because the US tax system is progressive or graduated, your effective tax rate is not a flat rate. Your taxes are figured based on the portion of your taxable income that falls into the respective tax bracket, with the top rate you pay (based on the final bracket you fall in) being your marginal tax rate.

For example, if you’re single and have a taxable annual income of $60,000 (your actual income may be much higher) after deducting your applicable personal exemption, standard deduction, you pay 10% on a portion of your taxable income up to the 2012 expected bracket limit of $8,650, 15% on the next portion and 25% on the third and final portion. Your marginal or top tax rate is 25%, with your effective tax rate being total taxes paid, divided by total income. In this case it would be $11,097/$60,000 = 18.5%. See the table at the end of the post to figure out your marginal tax liability.

Other tax breaks have been extended into 2012 and should be factored into your tax planning include:

– The Personal exemption in 2012 has increased by $100 to $3,800. The standard deduction, claimed by tax payers who don’t itemize deductions, will increase by $300 for married couples and by $150 for singles and married people filing separately. It increases $200 for heads of household.

– Capital gains and dividend taxes -Long-term capital gains (on assets held at least a year) and qualified dividends will continue to be taxed at a maximum of 15%. This benefit will mean that investors can keep more of their gains. Short term capital gains will continue to be taxed at ordinary income tax rates.

401k contribution limits have increased by $500. Catch-up contribution, Roth IRA and Traditional IRA limits remain unchanged.

– Estate limit increase and lower taxes – Existing thresholds will be raised to $5.12 million for an individual or $10.24 million for a couple for both estate and gift-tax levies, with a top tax rate of 35%.  These new provisions will expire at the end of 2012, meaning a lot of revised estate planning for families. Taxpayers who have already used some of their lifetime exclusion under the old rules ($1 million) will be eligible for the higher exemption limit.

– The annual gift-tax exclusion remains unchanged at $13,000 for singles and $26,000 for a couple. This amount is what you can give away, per person, without any associated tax liability. This is in addition to the lifetime limits.

– The American Opportunity Credit, which allows eligible college students and their parents to save up to $2500 on their taxes has also been extended into 2012. The AOTC replaced the Hope credit and will continue to do so for 2011 and 2012. The teachers Tax Credit (up to $250) for teachers who purchase classroom supplies using their own money is also likely to be extended into 2012 (to be requested in 2012 budget)

– Other tax credits extended into 2012 include the Child Tax Credit, which provides $1000 per child under 17 years-old, and the Earned Income Credit, which reduces the marriage penalty and creates a “third tier” of the EITC for families with three or more children.

2012 Tax Rates and Income Brackets By Filing Status

The table below provides an easy way to figure your marginal tax liability based on your taxable income and filing status. For example, if Jeremy and Diane filing a joint return and their combined taxable income is $145,000, their marginal (top) tax bracket rate is 28%.

Before deductions and credits, they can expect to face a federal tax liability of $27,735 plus 28% of the excess over $142,700. This is equal to $27,375 + ($145,000 – $142,700) or $30,035. Their effective federal tax rate is $30,035/$145,000 = 20.7%.

2012 Tax Brackets and Rates by Filing Status - Married, Single, Head of Household
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32 thoughts on “Tax Brackets and Federal IRS Rates, Standard Deduction and Personal Exemptions”

  1. Can you tell me how to calculated the total tax I will have to pay for a withdrawal from my IRA of 10000? I payed 3000 on that withdrawal already and I have 16,000 left in the IRA. Also do I have to claim the 16000 in the IRA?

  2. I wanted to take $20,000 from my IRA account. Do I have to pay taxes on this? If so do they take the taxes out before I receive the funds?

    • It depends how old you are. If you are over 59 1/2 – you will pay taxes at your marginal rate. If you are under this age you will also pay taxes as well as incurring a 10% penalty for early withdrawal. It depends on your administrator as to the tax transaction. You can ask them to withhold taxes or pay them yourself at filing time. The IRS has federal tax withholding requirements which are applied to IRA distributions, and most good retirement plan administrators know this and offer the option for taxes to be withheld. In other words, you should be able to have taxes withheld (before you take out the funds) at the time of distribution, similar to an employer’s withholding from a paycheck. If, at the time of tax filing, the individual has had more income tax withheld than their liability requires, they will receive a refund. If the individual’s liability exceeds the amount that they had withheld over the course of the year, they will owe additional taxes at filing time.

  3. i supported my husband all year jan 13 he got arrested and i cant get him out still married how can i file since he wont be able to sign he didnt work all year he has no income

    • There are five IRS tests that must be met for a child to be your qualifying child. The five tests are: 1. Relationship,2.Age,3. Residency,4. Support, and 5.Joint return. Per publication 501, in regards to age a child must be:
      • Under age 19 at the end of the year and younger than you (or your spouse if filing jointly),
      • A full-time student under age 24 at the end of the year and younger than you (or your spouse if filing jointly), or
      • Permanently and totally disabled at any time during the year, regardless of age.

      So I think you are okay to claim your daugther based on the information you provided.

  4. In trying to explain the tax rates and expectations for my new-to-the-workplace grandchildren I used the example you gave for a single person “earning” $60,000 a year and came up with paying $11.097 in taxes, or 18.5% of their gross income. Since they would get $9750 reduction from gross income for a personal exemption and standard deduction I calculated the tax liability to be $8592.35, or 14.32% of the gross income of $60,000. Am I missing something?

    • You are correct. Thought the effective rate could be different if one itemizes (i.e. does not take the standard deduction). In the above table, the income is taxable income – so after the standard deduction is removed. So really $60,000 of earnings per year would be $50,250 of taxable income.


    • You said “inherit”. You do not owe any income tax on an inheritance. I suspect the employer is withholding 20% from a qualified plan. The dead employee would owe income tax on that, however, the rate would be based on how much money HE/SHE made that year. If it is not a qualified plan…you owe nothing and the 20% should not be withheld.

      • I disagree with Don’s answer. This sounds like an employer plan and they are going to distribute the account assets to you with the mandatory withholding of 20% for federal tax. You would be responsible for the tax liability, not the deceased estate. Whether the 20% is enough to cover the liability, depends on the amount of the distribution and where your tax bracket will lie with that as additional income. As a non-spouse beneficiary, you can rollover the assets into a “Beneficiary IRA” and take distributions based on your life expectancy (I am assuming your friend was under age 70.5) to minimize tax liability. You can always take additional amounts from the Bene IRA if needed. The Beneficiary IRA gives you flexibility and doesn’t force you to pay tax on a lump sum, which can be a big burden if the “inheritance” is large.

  6. Can someone tell me what the min. amount you have to earn to qualify for eic in 2012??
    thank you for your time

  7. I think there’s an error (transposed numbers) in the second table for the highest bracket for single people. I believe it should be $112,683 plus… instead of $112,863 plus…

  8. I am tingling with anticipation about the extra $1.73 per week that my wife and I will get in our paychecks. How will we spend it?

  9. In your 2012 Tax Tables there is an example where Jeremy and Diane have an income of $145,000. Your calculation of $30,035 in taxes is not correct. The correct number should be 28,379.

    Your calculation added the $2,300 of income in the 28% bracket at full value instead of using 28% of the $2300.

    • Thanks Charlie; it took me a while to figure out that Jeremy and Diane’s taxes were not correct… I thought I was the dummy. Had to read the comments to know the difference.

  10. FYI: You can find your AGI from your most recent tax return. You’ll find it on line 37 if you used the Form 1040, line 21 on Form 1040A or line 4 on the 1040-EZ.

    • Oh dear… what delusions we have come to adore… Inflation.. upside?! Anathema! What they aren’t telling you is that the REAL inflation rate is more like 8% because your precious leaders didn’t include energy and food in the “basket of goods” – no one uses those anyway – no biggie right. So the new gracious increases don’t account for that 5.5%+/- difference. Also, the “effective” taxed difference of 185$ for 100k income is .18%, whereas even the Feds admit to 2.43%? inflation? They need some new calculators. If I’m spending 2.43% MORE on all my needs, then how is a .18% “effective tax credit” going to prevent the NET loss of 2.25% of asset value due to inflation, especially when as I said.. its really a NET loss of 7.82%. Summary you say? My head hurts you say?! STOP Printing money!!

      • Yeah, stop printing money and feel free to raise interest rates. Neither of these create jobs. Nor do they preserve savings.

        • yeah you kind of right john….. but if were smart enough you would of know that printing money at the rate the government is doing, it will create hyperinflation. It happened in Germany in 1923. Their government started printing money to boost the economy and employment rate of at 1%. Everyone had money. But……… what they didn’t know was that hyperinflation was around the corner. By the end of 1923 an American dollar was worth 43 billion German marks! So buddy………. YOU ARE WRONG!

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