Question 1

What is the difference between effective and marginal tax rate?

Accepted Answer

Your marginal tax rate is the rate applied to the last dollar you earn -- it corresponds to the highest bracket your income falls into. Your effective tax rate is the average rate you actually pay across all brackets. For example, if your marginal rate is 22%, your effective rate might only be 12% because the first portions of your income are taxed at 10% and 12%. The effective rate gives you a more realistic picture of your overall tax burden.

Question 2

Should I take the standard deduction or itemize?

Accepted Answer

You should choose whichever gives you the larger deduction. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly. Itemizing may benefit you if your combined mortgage interest, state and local taxes (capped at $10,000), charitable donations, and qualifying medical expenses exceed the standard deduction. Most taxpayers benefit from the standard deduction since the 2017 Tax Cuts and Jobs Act nearly doubled it.

Question 3

What are FICA taxes and how are they calculated?

Accepted Answer

FICA stands for the Federal Insurance Contributions Act and funds Social Security and Medicare. The employee portion is 6.2% of wages for Social Security (up to $168,600 in 2024) and 1.45% for Medicare on all wages. High earners pay an additional 0.9% Medicare surcharge on wages above $200,000. FICA taxes are separate from federal income tax and are not reduced by deductions or exemptions.

Question 4

How do pre-tax deductions like 401(k) and HSA reduce my taxes?

Accepted Answer

Pre-tax contributions to a 401(k), HSA, or Traditional IRA reduce your adjusted gross income (AGI) before your tax deduction and brackets are applied. For example, if you earn $75,000 and contribute $6,000 to a 401(k), only $69,000 is used to calculate your federal income tax. This effectively lowers the amount of income that reaches higher tax brackets, reducing your overall tax bill. The 2024 contribution limits are $23,000 for 401(k), $4,150 for HSA (individual), and $7,000 for Traditional IRA.

Question 5

How do state income taxes work?

Accepted Answer

State income taxes vary widely. Nine states -- Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming -- have no state income tax. Other states use either a flat rate (like Illinois at 4.95%) or progressive brackets (like California with rates up to 13.3%). Our calculator uses approximate effective state rates for a middle-income earner. Your actual state tax liability may differ based on your state's specific brackets, deductions, and credits.

Income Tax Calculator

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Key Insights

Marginal vs Effective Rate

Standard vs Itemized

Pre-Tax Deduction Power

Frequently Asked Questions

What is the difference between effective and marginal tax rate?

Should I take the standard deduction or itemize?

What are FICA taxes and how are they calculated?

How do pre-tax deductions like 401(k) and HSA reduce my taxes?

How do state income taxes work?

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