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Thursday, 24 July 2014

Tax Brackets - Make Sure You Know About Marginal Taxation


If you have ever worked longer hours and found that these hours net you a higher rate of tax and yields less income, a copy of tax brackets may save you from making the same mistake again. Primarily the reason for this effect is marginal Tax Bracket and they may make you think twice about putting in all those long extra hours of work only to be rewarded less and taxed higher.

It is confusing to think that the harder you work the less you earn and the more you are taxed, but if you understand the reason why, this situation can be avoided. Marginal tax is additional tax which is charged for all additional income earned. It hardly seems worthwhile working when income is taxed in this progressive way!

With the economy being bad, and people not able to make ends meet, one of the first things financial advisors recommend you do is take a second job. This may make the difference between losing your home to foreclosure or being able to pay your medical bills, but is a second job worth the fuss?

For example you work in a department store during the day and your income is taxed at 20%. You are struggling financially so you take on an extra three hours work at a local after hours' drugstore as a clerk. With the earnings from both these jobs it is anticipated that your take home pay will be significantly more, only to find out that you are placed in a higher tax bracket and you are also paying marginal tax rates.

The only way to find out how this kind of tax will affect your earnings if this is the course of action you are considering is get your hands on a copy of tax brackets. This way, before you take on additional work, you are able to find out how it would affect income to tax ratios and if it will really be of tangible benefit.

Related Post:
How to Compute a Tax Bracket
Estimating Tax Brackets for 2014

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