Why You Need to Know Your Income Bracket

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Do you expect, or secretly hope for, a tax refund every year? Our clients are no different. When you don't get a refund, or the amount falls below what you've gotten in recent years, you immediately think your preparer made a mistake.

It gets worse if you had an excellent income-producing year from a great number of payroll companies that all withheld properly-if you only consider them individually. But when that income from all sources is totaled, you may learn that the combined amount has thrown you into a much higher tax bracket than expected and you were significantly under-withheld. That means not enough taxes were kept from your checks as tax payments to the feds and the state(s) given your new, higher bracket.

I can't tell you how many clients come into our office with no idea how much they made until we add it all up. "I made that much? Where did it all go?" they invariably ask. Unfortunately by then it's too late to make changes in your withholding.

I appreciate how difficult it is to pursue your career, but you better have an idea of your financial position beyond checking your pocket periodically for cash. You should regularly total both your gross income from all sources and how much federal tax is being withheld. If you believe your income is climbing during the year and you don't keep this running total, it should come as no surprise that you didn't have enough withheld from your checks to match the refunds you may have received. Even worse, you don't want to owe the IRS. Knowing where you stand allows you to call to have the different payroll companies increase your withholding as you move up in tax brackets.

Although one of my associates calls unemployment benefits "the greatest subsidy of the arts," it is another substantial contributor to owing at the end of the year. While many performers receive significant amounts of unemployment, they neglect to have taxes taken out. "But I needed every dollar" quickly sounds foolish when you are looking at owing several thousand in taxes from your unemployment income alone.

This problem isn't always the fault of the performer. There is one commercial payroll company that routinely under-withholds-so much so that we have named the boxes of Kleenex on our desks after it.

As your income increases, so should the percentage of your withholding amounts. Even if you have been good about allowing a usual 10 percent to be withheld for your federal taxes (state and city amounts usually follow with acceptable withholding percentages) during the year, you will find yourself owing if you have the good fortune of getting more jobs and therefore more income. If your income goes up by just $10,000, you may now be in a higher tax bracket, and all those additional salaries should have been taxed at the higher rate.

The following tax tables are based on "Taxable Income" (after expenses and exemptions credits are subtracted from your income).