ECON 0110 Lecture Notes - Payroll Tax, Tax Competition, Taxable Income
Document Summary
Income taxes are paid on taxable income, not gross income. To determine taxable income, various items are subtracted from gross income. The most important subtractions are: personal exemptions, standard deduction. You are permitted to subtract a specified amount from your gross income for each member of your hyousehold. In 2009, the personal exemption was ,650 per person. The taxpayer can subtract ,600 from his gross income before paying taxes. Federal income taxes are based on taxable income, not gross income. Gross income exemptions deductions = taxable income. Capital gains and dividends are taxed at slightly lower rates than other sources of income under current law. Max tax rate = 15% for capital gains and dividends. Taxable income = ,350 - ,650 - ,700 = ,000. 15% of income from ,375 to ,000 (,000 - ,375 = ,625) 25% of income from ,000 to ,000 (,000 - ,000 = ,000) Average tax rate = tax / gross income.
