How Is My Tax Figured?

You are responsible for reporting your income to the Internal Revenue Service (IRS) and figuring the tax due on it. You do this by filing an income tax return each year you meet the filing requirements. The IRS provides tax forms, instructions, and publications to help you. These forms, instructions, and publications are based on the tax laws passed by Congress that are contained in the Internal Revenue Code.

Taxable income. Wages, tips, and other fees you receive for work you do, all count as income for tax purposes. Investment income, such as interest on your savings account and dividends, also counts as income for tax purposes.

The law allows you to deduct certain amounts from your income before you figure the tax due on it. These include the personal exemption (if you are entitled to claim one) and the standard deduction (or itemized deductions if you can itemize). These amounts are explained later. What remains is your taxable income.

Tax rates. Your tax is a percentage of your taxable income. There are five tax rates, 15%, 28%, 31%, 36%, and 39.6%. If you are single and your taxable income is not more than $26,250 for 2000, your tax is the amount of your taxable income times 15% (.15).

The 28% rate applies to taxable income over $26,250 but not over $63,550, and the higher rates apply to taxable income over $63,550.

Computing tax. Generally, if your taxable income is less than $100,000, you do not compute the tax yourself. Instead, the math has been done for you in the Tax Table that is included in the instructions to the tax form.

You use the Tax Table unless one of the following is true.

1. Your taxable income is $100,000 or more. In that case, use Tax Rate Schedule X.
2. You are required to use Form 8615, Schedule D (Form 1040), or the Capital Gain Tax Worksheet (in the Form 1040 instructions).

Maximum tax rates on net capital gain. For 2000 the maximum rate on a net capital gain may be 10%, 20%, 25%, or 28%, depending on the situation.

You may have a net capital gain if you sold stock or other property during the year. If you need details, see Publication 550, Investment Income and Expenses.

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