Why Am I Paying Higher Taxes this Year?

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You Might Be Paying Higher Taxes If You…

…Got a Raise

The U.S. uses marginal tax rates, which is the tax rate you pay on additional dollar income. It’s also called ‘progressive taxation’, so as you ‘progress’ into higher income, so does your tax rate. Whenever you receive an increase in income you risk being moved into a higher tax bracket. The top marginal tax rate is currently 37% and the lowest marginal tax rate is 10% for those making $9,700 or less.

…Received Unemployment

Most states do not take taxes out of the unemployment benefits provided, unless you request for them to do so. Unemployment benefits are taxable, so you will have to pay taxes on them. 

…Stopped Contributing to Your IRA or 401(k)

When you stop paying on your 401(k) or IRA you are subjecting yourself to a 10% early withdrawal penalty and the money will be taxed as regular income. Your employer also must withhold 20% of the amount you cash out to cover tax purposes on their end. The only exception to this rule is if you are over the age of 55.

…Haven’t Paid Any Student Loan Interest

The longer you ignore your student loans the more interest they will gain. You also risk the going into collections. The government can take your tax refund to cover these costs, or 15% of your wages, until it is paid back. 

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