Shortly after erecting his rate bar, Obama called Reagan a honky.

Since tax rate based discussions are so interesting and clearly what everyone seeks out to read, I thought you would all jump for joy at the chance to overview the 2013 tax rates outlined in the American Taxpayer Relief Act of 2012, which is about as interesting as it sounds.  Note that the final official for real tax rates have not been published yet, but since I read in Forbes that these are the likely tax rates you can rely on the table below to be more or less accurate.  After all, you are already this far into reading this article, why bother to read it in Forbes where it will surely be as dry as Betty White[1]?

The 2013 tax rates:

Source: Forbes.com

The 2012 tax rates:

                                                                                                                                                Source: Taxgeeksonline.com

Calculating the Impact: Marginal vs. Effective Tax Rates

Rule of thumbs such as “take 70% of your paycheck” to estimate your take-home pay are helpful but not entirely accurate.  In actuality, the tax system in the U.S operates like a ladder, in that the higher the step you are on the higher your rate will be, but to get to the higher rates you must first climb through the lower steps.   For example, if I make $171,551 filing single in 2012, I will pay a 10% rate on my first $8,350, 15% on my money between $8,350 and $33,950, 25% on my cash between $33,950 and $82,250, and finally 28% on all skrilla between $82,250 and $171,550.  I would pay a 33% rate on my final dollar earned.  The resulting amount of tax, when divided by my income, represents a 24% effective tax rate. A marginal rate is the rate that applies for a certain range of income only, but is not the representative of the actual tax rate an individual is paying[2].  This is why the “70%” rule of thumb is inaccurate (but still useful).

Rates Went Up, Right? Yes and No.

First off, stop watching Fox News.  For the average American taxes went down which can clearly be seen in the maximum limits per tax bracket (for example, the 35% rate used to start at $372,950, and now starts at $400,000).  Only if you bank over $400,000 do your taxes increase.  If you want to pay me over $400,000 I will come to work naked and let you throw cream pies at me.  The $171,551 single filer above would actually have his or her taxes cut by $427.24.  However, the above rates are only income taxes and as you know there are many other types of taxes the government uses to take your money.  Since the temporary cut in payroll taxes was allowed to expire, employees earning less than $110,000 (the majority of the country) will go back to paying their full share of the tax.  This would be $116.20 in increased taxes for someone earning $70,000.  Bear in mind this earner would have had their income tax cut by $258.75, a net decrease in taxes (at least when combining income tax and payroll tax) of $142.55.  Look at the whole picture, silly[3].

So unless you are a super high earner, the American Taxpayer Relief Act of 2012 isn’t bad news for you personally.  And if you do earn over $400,000 a year (or roughly $3.21 per working minute or more), I apologize that you may have to wait a few minutes longer to afford all that stuff the average American only sees on television.  I shed a tear for your poor soul[4].

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