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A reality check on tax rates

Started by baiselmareo6, March 28, 2020, 01:47:24 PM

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So many people I know have a very poor understanding of marginal tax rates. They think that if you fall in the 20% bracket, ALL your income is taxed at 20%

Here is a reality check. In these calculations, I'm assuming that you have maximized 80c savings of 1.5L

If you make 12L/year, you would pay 1.32L as tax. Your effective tax rate is just ~11%

If you make 20L/year, you would pay 3.82L. Your effective tax rate is just 19.1%

If you make 40L/year, you would pay 10L. Your effective tax rate is just 25.1%

You would have to make 60L/year to get close to 30% tax rate

If you're making 60L per year, you're well off in most of the world (barring outliers like San Francisco) and fabulously well off in India. Does 30% tax rate really hurt you that much?

I'm personally within this tax range and I don't mind paying the money. It's a standard practice across the world for independent contractors like me to keep 30% of any money made aside for taxes.

Keep this in mind. The last majority of people would cap out under 20% tax rate