There's a lot of talk during this election cycle about fairness and taxes. John McCain says that everyone should pay a little less. Barack Obama says that people who make $250,000 per year and up should pay more.
The interesting thing that rarely gets spoken about is the fact that the United States has a progressive tax system. Taxes aren't based on a fixed percentage of income but on a scale that gets progressively higher as income increases.
There are currently five Federal income tax brackets in the system: 10%, 15%, 25%, 28%, 33% and 35%. A married couple earning $50,000 per year are in the 15% bracket and a married couple earning $250,000 per year falls into the 33% bracket. At first glance you might think that this is unfair because it appears that a family earning five times the income only pays a little more than double the taxes. Let's do the math and see if that is true.
Married Couple Earning $50,000
Earnings Rate Taxes
$16050 0.10 $1605
$33950 0.15 $5092.5
$50000 $6697.5
Married Couple Earning $250,000
Earnings Rate Taxes
$16050 0.10 $1605
$49050 0.15 $7357.5
$66350 0.25 $16587.5
$68850 0.28 $19278
$49700 0.33 $16401
$250000 $61229
* Based on the brackets detailed here.
The numbers here don't lie. The couple earning $250,000 has a Federal tax liability that is nine times the Federal tax liability of the couple earning $50,000 per year, not the two to three times that many people assume.
Actual tax paid will vary based on deductions. But it is an undeniable fact the taxpayers who Barack Obama says should pay more, in the interest of fairness and spreading the wealth, already incur a very large percentage of the tax liability in the United States. If we still think thay they should pay more then the following question needs to be asked. How much is enough?
If you won $50,000 a year you would be taxed as you received the money. So it's a question of having the taxes taken out a little bit at a time or all at once. Over 20 years that would be $1,000.000. You probably would pay more in taxes if you took the money all at once but you would then you would very likely be able to put that money in an account that would earn more than the rate of inflation at the very least. If you take the money over 20 years you pay the taxes and you lose money because the million is worth less than a million due to inflation. So tax implications aside it's always better to have one in the hand than two in the bush as they say.
what if you won money for say $50,000 for 20 yrs
how would that be taxed?
OR -
Are you better off taking the $100,000 with taxes taken out?
Thank you for the information on the tax brackets ......I had not known this before as many others .....since I started to take a free on line course a lot of questions are getting answered
Thanks again
Denise