Tax season is just around the corner, and as 2017 draws to a close, it's important to start thinking about your taxes. To figure out whether you should expect a sizable refund or will owe money to the IRS, the first step is getting a handle on how much income tax you'll likely have to pay.
Too many factors to count play into the precise amount of tax you'll pay, but you can still get a good idea from looking at some of the most typical situations that Americans face at tax time. To help you do that, here are two typical situations involving households that each make roughly the median income of $50,000.
Scenario 1: Single and starting out
Two factors arguably play the largest role in what your tax liability will be: your filing status and the number of family members you have in your household. In general, the smaller your household is, the more tax you'll pay for a given income figure.
As an example, take a single person making $50,000 per year. We'll assume that this person has no children or other dependents and has insufficient itemized deductions to justify not taking the standard deduction. To keep things simple, we'll also assume that all of this person's income comes from a regular job with an employer.
In this case, gross income of $50,000 will be reduced by a standard deduction of $6,350 and a single personal exemption of $4,050. That makes taxable income equal to $39,600. That's just barely enough to push the taxpayer into the 25% tax bracket, and the tax will be $5,638.50. Notice that even though the marginal tax rate is 25%, the effective tax rate over the entire $50,000 in income is just over 11%.
Scenario 2: Married with children
To see just how different a tax situation can be, take a similar example but with a much different family structure. Instead of a single person, say that you have a married couple with two children with total household income of $50,000. In order to make comparisons simpler, we'll keep the rest of the assumptions the same: taking the standard deduction with all income coming from regular job pay.
In this situation, you start with the same $50,000 in gross income, but the standard deduction is twice as much at $12,700. Two spouses and two children add up to four personal exemptions, which at $4,050 each reduces your taxable income by $16,200. That yields just $21,100 in taxable income. Under the married joint filer rate structure, that puts you barely into the 15% bracket, and the initial tax calculation yields just $2,232.50 in taxes.
Yet that's just the start. Assuming that the two children qualify for the child tax credit, this family can reduce their tax burden by another $2,000. That brings the total tax bill down to just $232.50, and the effective tax rate on their $50,000 income is less than 0.5%.
General conclusions about taxes for typical American taxpayers
These two examples won't fit your situation perfectly, but they illustrate some basic rules that govern taxes for those with incomes of about this size. Married couples get larger standard deductions, and families with children get added personal exemptions and other benefits like child tax credits. The tax brackets that cover joint filers impose much lower taxes than the brackets for single filers. In most cases, however, those making $50,000 will pay only a small percentage of their overall income in taxes.
Obviously, other factors can also apply. The more of your $50,000 comes from tax-favored investment income like long-term capital gains or dividend income, the lower your taxes will be, because the tax rates on those types of income are lower. Some taxpayers will also qualify for credits and deductions other than those listed here.
For the most part, households with incomes of around $50,000 can expect to pay effective tax rates of around 10% or less. That's good news for those who have to count every dollar in order to make ends meet, and it's important to take advantage of key tax provisions designed to make the tax system as kind as possible to typical Americans and their families.