Income Tax Comparisons

[ledhed]

I was talking about state -local and federal ( inc. SS ) . You wanted total tax burden no ?
Whats left from your pay after everyone bites it ? I didnt look at a tax return figure because it has so many variables...at the end of the year after earning 33,000 you may pay NO TAXES federal or state..except for SS and some local stuff..you may get a refund . It depends on how you are set up and your circumstances.
All I did was look back on notes from when I paid myself around 33,000 in fact I think the amount was chosen because of the tax bracket it put me in at the time , and was the least expensive option from the total picture..of course the business paid for my car ..my truck ...my wifes car..some entertainment..health insurance for my family..vacations ...sick days....car insurance...life insurance...etc..etc...
many proffesionals when they bargain for a contract do much the same thing..glamming onto all the bene's they can to defer taxes. One car lease alone can be worth 8000 a year in insurance and related cost . Add health insurance and a liberal vacation plan , term life, and 401 k and profit sharing etc. and you could almost match if not exceed your salary and save a fortune in taxes vs. what it would cost you if you paid for it yourself...and THE COMPANY gets tax breaks for doing it. 💡
When you sub contract on a job you can even set things up to be paid in a way that defers your tax bite . think consultant..or " temporary employee " and imagine whats possible..

 

[Danoff]

Alright, this discussion has gotten a little too complex to follow. I’m very interested in this subject though, so I’m going to try to keep things straight and get the ball rolling again.

In the US we have a little thing called deductions. We’re allowed to subtract certain expenses off of our taxable income. Ledhed was mentioning how they can get out of hand, but someone who makes $50k/year can manage to deduct all $50k and actually pay negative income tax (he gets money from the government). We have deductions for kids, houses, business travel, retirement accounts, state taxes, practically everything.

I know there are deductions in Canada too, for a spouse and for CPP contributions and the base 8k deduction. We have a similar base deduction here in the US called the standard deduction – it’s about 8k also (I think).

Because deductions are so different for different people. I’m going to talk AGI (adjusted gross income). That’s your income after deductions. That way we can cut through some of the difficulties with comparing the different systems (though this should give the UK an advantage because I don't think they have much in the way of deductions). I also realized after looking into the Canadian tax system (http://www.taxtips.ca/tax_rates.htm#PersonalTaxCredits) that it’s pretty important to include local income taxes as well as national.

So we’ll look at three different income categories and I’ll do the whole thing in US dollars. The categories are $33k USD (~18k pa), $95k (~50k pa), and $285k (~150k pa) adjusted gross income that is, after deductions .

I think it’s important in this discussion to take into account the social security, national insurance, or Canadian pension (not including employer required contributions ).

For the US that’s 6% for SS up to 90k income and another 1.5% for medicare.
In Canada that’s $1,831.50 for the pension and $772.20 for the insurance.
In the UK that’s 8% for national insurance.

So here’s what I’ve got. The tax liability in percentage of AGI is:



$33k AGI
US California – 24.7%
US Nevada – 21.1%
Canada Quebec – 37.9%
Canada Nunavut – 27.9%
UK – 19.56%
---------------------------------
$95k AGI
US California -35.2%
US Nevada – 28.0%
Canada Quebec – 40.7%
Canada Nunavut – 30.0%
UK – 31.00%
---------------------------------
$285k AGI
US California – 39.0%
US Nevada – 30.4%
Canada Quebec – 45.5%
Canada Nunavut – 36.6%
UK – 42%



Please, feel free to check my numbers – especially the Canadian ones. It is VERY possible that I made an arithmetic mistake somewhere. I got the Canadian tax brackets here: http://www.taxtips.ca/tax_rates.htm#PersonalTaxCredits

Keep in mind that the income reported is after all deductions and that individual costs for things like national insurance and social security are included as tax.

 

[Famine]

So, on paper at least, it looks to be worse for you if you're "rich" in the UK, but at my kind of income level I'm marginally better off?


So, tell me how this guy earning $50k can get money back on his income tax... I'm curious...

 

[ledhed]

by having a bunch of dependents and a large mortgage in its first few years. Or if he has a bunch of medical expense along with work related expenses. If he can get his adjusted income low enough he will qualify for an earned income credit and get back his federal witholding tax PLUS the EIC .

 

[Danoff]

So, tell me how this guy earning $50k can get money back on his income tax... I'm curious...

Deductions deductions deductions.

So you get a standard deduction. I don't know how much it is, something like 9k. So the new AGI is like 41k. Then you contribute 13k to your 401k retirement account, so now your AGI is 28k. Now let's say you paid 10k over the last year in mortgage interest. New AGI is 18k. And you've got a couple of kids? That's a few more deductions.

You're going to get the earned income credit and the IRS will pay you (net) for the year.

I have the numbers at home for the average tax rates in the US (not including SS or state taxes). I'll type it up to illustrate who gets how much back.

Edit: Just remembered you can't take mortgage interest AND the standard deduction. But that's ok because even without the mortgage interest my hypothetical guy qualified for EIC (earned income credit).

 

[Solid Lifters]

All I know is that 31 % of my gross pay is gone to SS , state , local and federal taxes. I keep .69 cents of every buck I earn .

Of that .69 cents, how much goes into products or services that are taxed with excise taxes, tariff taxes, activity taxes, etc. You'll soon realise you're paying a lot more than just 31% in taxes. But, I guess we're only talking about income taxes, Federal, State and local, here.

 

[cardude2004]

ledhed, you may keep more than 51% of your income (you don't get it taken as tax), but that isn't so for everybody. People on higher income brackets will have Uncle Sam take more.

I got my federal tax check in the mail yesterday. I got back all of the money that was taken in taxes. I worked at the Wisconsin State Fair over the summer.