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It seems as if anyone that's getting paid $398,351 – $400,000 would simply lower their salary to the $183,251 – $398,350 tax bracket and get 2% lower income taxes. Does the bracket serve any purpose, or is it simply some type of bureaucratic necessity?

Vipul Naik
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byrass
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    How would they "simply lower their salary" ? Also, the income tax rates are marginal rates, so the "2% lower" would apply only to the income above the threshold, not to the entire amount of income. – Chris W. Rea May 03 '15 at 17:01
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    Not 2% lower income taxes; brackets are marginal: http://money.stackexchange.com/q/23560/24700 – Dan Getz May 03 '15 at 17:03
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    All Tax systems tend to have these odd tax bands where you get off effects

    @ChrisW.Rea Salary Sacrifice or Charity Donations can be used if your just over one tax band to manage your tax liability

     – Pepone May 03 '15 at 17:38
  • The extra 2% is basically $33 for the extra $1,650 of income (above the lower tax rate). –  May 03 '15 at 22:47

2 Answers2

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I recognize the numbers you show to reflect the 2013 tax brackets. In 2015 the top of the chart for singles looks like:

enter image description here

Before this remarkably cute little tax bracket appeared, the top rate was 35%. Instead of simply eliminating it, for singles, congress started the next bracket, 39.6% at $413K.

The brackets for married filing joint look a bit saner, with 35% running from $411K-$465K.

JTP - Apologise to Monica
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    This seems like Congress trying to pull a fast one. "We didn't increase your rate from 35% to 39.6%, we just added a new bracket!" – Andy Jun 09 '15 at 18:36
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    Right. The bracket runs for $1700. A bit silly, I'd say. These $1700 are taxed at 35%, then it's 39.6% on up. – JTP - Apologise to Monica Jun 09 '15 at 18:40
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    The administrative cost needed to deal with such a small tax bracket probably outweighs any tax revenue they get from it. – Eric Jun 09 '15 at 20:17
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    I'd say that most returns that have a "cost" are done by computer, in which case there's no incremental cost. Is there any pro doing returns by hand? – JTP - Apologise to Monica Jun 09 '15 at 21:15
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Eagle,

It may not be clear yet, but the tax rate in a certain bracket is only applied to the income within that range.

For example, let's say you earn 40k a year. And there are two tax rates which concern you: 10% - on earnings up to 25,000 15% - 25,001-50,000

According to this scheme, you would pay 10% on the first 25k (2,500) and then you would pay 15% on the remainder (c. 2,250). The remainder which incurs the 15% tax rate is your salary, 40k, less the bottom end of the highest bracket, in this case, 25,001.

I hope I did my math right there...

E-man
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    Note that the rates apply not to raw earnings, but to what's left after exemptions & deductions. So a single person earning $40K/yr would have $3950 personal exemption and 6200 standard deduction (in 2014), so would pay 15% of $4850, or $757.50. (I think - at least if my math's wrong, the IRS hasn't noticed yet!) – jamesqf Jun 09 '15 at 17:39
  • Hmmm, I see money scheme... – byrass Jun 12 '15 at 20:44