If you've found yourself staring at a 1040 form with no idea where to start and feeling like you're about to have a panic attack, this blog post might be for you. It's a quick overview of what tax schedules are, why they exist, and how they work!
What is a Tax Schedule?
Tax schedules are documents that list the various types of taxes that apply to certain types of people and the percentage those taxes should be based on.
Example
For example, if someone has income from unemployment compensation or Social Security benefits they are taxed at 0%, but if they have income from interest or dividends then there is usually a marginal tax rate set. Tax schedules help you determine the percentage of taxes you should be paying to the various tax departments.
How Does a Tax Schedule Work?
When you look at a tax schedule, it may seem confusing and complicated. However, the easiest way to determine what your taxes owed will be is by looking at the second column of your tax schedule.
For example, for a taxable income of $8,000 (in the 20% tax bracket), you would pay $800 as taxes. For taxable income of $16,000 (in the 40%), your taxes would be 40% of this amount. This comes out to be $8,000 x .4 = $3200.
The total taxes owed for the 40% tax bracket on $16,000 would be $3200 + $800 = $4000.
The tax schedule serves a valuable purpose when trying to file taxes online. It allows you to see the exact amounts to pay for each bracket.
Why Would You Need A Tax Schedule?
Your first thought might be that you don't want to pay any tax! Tax rates are so high, and it seems that only wealthy people can keep their money without paying taxes. Well, we all know that wealthy people will pay for everything, including their healthcare and education.
So why would you want to get a low amount of in-kind benefits from the government (the only one who can afford those benefits)? Your own financial goal should have a higher-paying job. If you have a high-paying job, then it means you'll be paying more income tax, but that's what taxes are for.
They're the price you pay for living in America (or your chosen country).
As we mentioned above, those with higher income often get to keep less money after taxes because they're taxed at a marginal rate (income exceeding an amount is taxed at a progressively increasing rate). However, those with lower incomes are hit with tax brackets which could potentially see their entire income taxed.
And now we start the "more money going in = more money coming out" equation. Taxes are spent on things like roads and law enforcement, but those services are also provided to you and everyone else who is paying into the system. So why not pay your fair share?
Think of it as a membership fee at the gym or a monthly box subscription. You don't want to pay for it, because you use it only once in a while, but without your payment then the thing stops existing altogether.
You can find tax schedules online through official government websites or a lot of them (all of them?) can be found in the IRS Instruction booklets on Form 1040.
How Do You Use A Tax Schedule?
In the case of Form 1040, the tax schedule has been printed on the form itself. So you don't need to worry about copying it off or finding it elsewhere to fill out your taxes. If you have a different form, however, then you'll likely need a tax schedule for that form as well.
Either way, if you're filing taxes for more than one category (for example, both unemployment income and Social Security benefits), then you'll have multiple sections in your tax return where different categories will be listed separately with their percentage rates and allowances.
Do You Need To File a Tax Schedule?
The more complicated the form, the more likely you'll need to file a tax schedule. If you're filing your taxes for the first time or haven't used your tax form before, it's helpful to review that form's tax schedule to ensure everything is filled out correctly.
They're hard enough to read and understand, let alone fill out!
If no (or few) questions on your return relate only to one income category (or none), then you may not need a tax schedule.
Conclusion
In conclusion, a tax schedule lists the various taxes you owe on your income during the year. The most common types of taxes are federal income tax, state income tax, and local income tax.
You will also need to pay social security, Medicare, and any other special taxes that may apply to your situation. You can avoid costly penalties for late payments by understanding what taxes are due and when they are due.
Make sure to consult with a qualified accountant or tax preparer to ensure that you are paying the correct amount of taxes and filing your returns on time.
