Little Changes to the Federal Tax Rates Can Really Add Up

For example there is a tax bracket where the rate is only 10%.  Everyone would like to be in that tax bracket!  Well if you make $8,700 in 2012 or less that’s you.  Before 2001, there wasn’t even a 10% tax bracket.  In 2009, you had to make $8,350 or less to pay the lowest federal tax rate.

So, if you made $8,500 in 2009, you paid 15% tax rate.  If you made the same amount in 2012, you’d pay 10%.  That slight adjustment in the 2012 federal tax rates saved you a whole bunch of money because it moved you into a lower tax bracket.

Other Changes to the Federal Tax Rates

Other changes from year to year are adjustments on the standard deductions.  Deductions are the amounts you can subtract from your annual salary to reduce it before you figure out how much you pay in taxes.  So, if your employer pays you annual salary of $36,000, you can already slice off $5,950 to make an adjusted income of $30,050.

So again, a tiny tweak to the federal tax rates can sometimes save you money.  The changes may just put you into a different tax rate, if your income falls on the edge between two brackets.  For the 2012 federal tax rates, the standard deduction for a single person was raised to $5950.