My adventure into the Mathematics of Taxation

I have been filing my own taxes since I was 15. Although I now see that math plays a huge role in what money the government takes, at 15 I just snapped a picture of my W-2 to Turbo Tax,  let it do its thing, and boom! I had a check in the mail.

I yearn for the days when it was that simple.

Being a single, independent adult with multiple 1099’s, w2’s AND college tax credits have made my tax seasons a little less enjoyable. After hearing in class exactly how taxes are calculated, it got me thinking. How does tax math actually affect me? More importantly, how do tax changes affect this math?

What I have found is that taxes are complicated. Many Americans don’t understand how they work, why they are the way they are, or where their money is even going.

In 2017, the Tax Cuts and Jobs Act was passed in an attempt to simplify the federal tax system. The new act includes two major changes:

The first change is the tax rates for the 7 tax brackets. They have been changed from 10% 15% 25% 28% 33% 35% & 39.6% to  10%, 12%, 22%, 24%, 32%, 35% and 37%. 

The second change affects the standard deductions for filers. The standard deductions this year is nearly double what it was last year. For singles, it jumped from $6,350 to $12,000. For Married joint file couples the number increased from $12,700 to $24,000

So, in order to understand how this change affects me and the math of taxes, I actually have to do some math. Since I live and work in New Hampshire, I don’t dont have to worry about anything with the state.  What I DO have to worry about is this difference between the old tax brackets and the new “simple” tax system.

Spoiler Alert: it is not simple.

Luckily, NerdWallet breaks down the math in a way that’s easier to understand:  Being “in” a tax bracket doesn’t mean you pay that federal income tax rate on everything you make. The progressive tax system means that people with higher taxable incomes are subject to higher tax federal income tax rates, and people with lower taxable incomes are subject to lower federal income tax rates. The government decides how much tax you owe by dividing your taxable income into chunks — also known as tax brackets — and each chunk gets taxed at the corresponding tax rate. The beauty of this is that no matter which bracket you’re in, you won’t pay that tax rate on your entire income.” 

Looking at the new tax numbers, we can tell the new standard deduction is obviously going to make a difference. So, if I made the average income of a high school graduate, $35,256,  last year and the same this year,  do I owe less this year because of this new system?

Lets do the math.

I first have to break my income out into the tax brackets. This visual provided by Nerdwallet shows the brackets for someone making $32,000.

Drawings provided by nerdwallet

 

 

 

 

 

 

So with that understood, lets do the math to see how this all makes a difference:

Math done with Standard Deduction

 

Obviously, with the standard deduction, there is a huge difference. With the standard deduction increase, the average high school grad saved $1,239.   But what if no one had any deductions? Do those tax bracket number changes make any difference on their own? I did the math to find out:

Math done without Standard Deduction

So, the tax bracket changes alone saved our average high school grad $781.93.

So what? Well, according to nerdwallet the income range for these brackets is supposed to increase again in 2020, leaving a few more bucks in your pocket. So take the time, do the math, and see if you’re paying too much in at work!

Note: I have no clue why the images are so blurry, they’re all high-quality images, sorry!

 

 

2 Replies to “My adventure into the Mathematics of Taxation”

  1. Well done Briana! That was very informative! I have done my own taxes for the past maybe 6 years or so, and I’m still trying to get used to it. Ever since i started working I never took the time to learn about taxes and how to properly calculate and file them. I have always just used Turbo Tax and hoped for the best. But now with this knowledge I am definitely going to start really taking my time with them to make sure all the math is right.

  2. Interesting! My taxes have been simple the past couple years, but this year will be different because of the college tax credit. Your post was very informative! I’ll have to keep it in mind when doing my taxes this year.

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