|Happy New Year! Unless you just got back from an extended stay on Pluto, you probably know that 2016 is a Presidential election year here in the US. In the coming months we will be hearing a lot about income inequality, the tax code, and whether the rich (however one defines that) are paying their “fair share”.
Have you ever wondered how your income stacks up against your fellow Americans? Do you have any idea what portion of the nation’s tax burden you are bearing?
Read on to find out how you can quickly answer these questions. And Happy Election Year.
Michelle Morris, CFP®, EA
Kiplinger recently published a simple calculator that shows where you rank as an American taxpayer on a percentile basis. Are you a member of the oft-vilified 1%? Are you in the bottom 50%? Or somewhere in between? What portion of total income did your cohort earn? What portion of total tax did you pay?
To answer these questions you need just one number: your Adjusted Gross Income (AGI). You can find it on your 2014 tax return on line 37 of your Form 1040. So go ahead and rummage around to find your 2014 tax return. I’ll wait. (The calculator uses data compiled from 2013 returns, but the differences should be minimal).
For example: an AGI of $150,000 puts you in the top 10% of earners. This group reported 45.9% of all AGI and paid 69.8% of total income taxes.
Go ahead and give it a try: Many people are surprised at the result.
No matter where you lie on the political spectrum, I think it is useful to know just where you land on the income & tax paying spectrum.
And while you have your tax return out- go ahead and take a look at Line 44 of your 1040. This is your total tax. Many people don’t have the foggiest idea what this number is, especially those who are employees and have the tax withheld from their paychecks.
Bonus question: What income puts you at the 50th percentile for income?
Answer: $36,841. 50% of returns reported income less than this, 50% reported more. The bottom 50% of earners earned 11.5% of all AGI and paid 2.8% of total income taxes. In some cases low-income workers actually paid negative income taxes because of the Earned Income Tax Credit.