From the first 1040A form we file for our first job, the amount of money withheld from our paycheck and the tax we end up owing is figured using a table of rates published annually by the Internal Revenue Service (IRS). To find your rate, you'll need your taxable income, filing status and this year's brackets or a tax table.

Taxable Income

The first figure needed to find a specific tax rate is the amount of income subject to taxation. In general, this figure is the total of all income listed on employer W-2 forms or 1099 forms, plus interest earned on investments and any other income, such as tips, not listed on W-2s, 1099s or other statements of income. Social Security income, inheritances and gifts are examples of income that may have specific reporting procedures that differ from ordinary wages. Once the income is totaled, certain deductions are subtracted to reach the income that should be taxed. Amounts may be deducted for dependent persons, medical expenses, taxes paid to other governments and a variety of other purposes. The final number, after all additions and deductions, is the taxable income.

Filing Status

Taxpayers file as single, married filing separately or jointly, or head of household. At this point, many taxpayers simply use the tables provided by the IRS to figure their tax. These tables list taxable income ranges down one side and filing status across the top in an "x-y" graph. To oversimplify a bit, the tax figures in the body of the graph are compiled using the tax rate for the smallest number in the category and average of the rate for the next highest category. By finding the range that includes the taxable income figure and following it across to the correct filing status column, many taxpayers save the time spent figuring taxes based on specific percentages. Tax to be paid in the current year can be easily computed by subtracting the amount of taxes withheld from the amount owed.

Brackets

For some taxpayers, it pays to apply the actual rates to their taxable income to compute their tax liability. Tax rates in 2009 ranged from 10 percent on the lowest incomes to 35 percent on incomes over $372,950. Tax rates have risen and fallen according to prevailing politics and economic theory over the years; in the early 1960s the highest tax rate (over $500,000 in income) was 91 percent. Rates can also affect the overall economy; cuts from 73 percent to 24 percent over the decade of the 1920s helped fuel a period of rapid business expansion. Rates, however, are changed infrequently. Brackets are adjusted annually according to economic conditions such as inflation and the cost of living. In 2009, taxpayers could use brackets to pay taxes in rate increments; 10 percent on the first $8,350, 15 percent on the next $25,650, 25 percent on the next $48,300, and so on for a single taxpayer.

Source:

Internal Revenue Service; Deductions, Credits, Income

TurboTax;Tax Rate Schedules

Slate; Kennedy-Era Tax Cuts

Resource:

Internal Revenue Service

Money Blue Book; Federal Income Tax Brackets