There are three sets of tax tables on this page. The first are the standard IRS tax tables demonstrating your marginal tax rates by marital status. The second are these same tables adjusted for your social security and medicare taxes if you are an employee. The third set are tax tables adjusted for an independent contractor, practice owner, or partner in which you pay both the employee and the employer portions of the payroll taxes, reduced by the self-employment tax deduction. If you wish to calculate your true marginal tax rate, be sure to add in your state and local income tax marginal rates. Remember to use the 2012 Tax Brackets to calculate tax due in April 2013.

2013 Standard Tax Brackets – Married Filing Joint
Marginal Tax Bracket Taxable Income
10% <$17,850
15% $17,850-72,500
25% $72,500-146,400
28% $146,400-223,050
33% $223,050-398,350
35% $398,050-450,000
39.6% >$450,000

 

2013 Standard Tax Brackets – Single
Marginal Tax Bracket Taxable Income
10% <$8925
15% $8925-36,250
25% $36,250-87,850
28% $87,850-183,250
33% $183,250-398,350
35% $398-350-400,000
39.6% >$400,000

 

So far so good. We’ve all seen these before. But what happens if you adjust them for those additional taxes you see come out of each paycheck-your Social Security and Medicare taxes (including the new Obamacare tax for income over $200K/$250K)?

2013 Total Marginal Tax Rate for Married Employee (One Earner)
Marginal Tax Bracket Taxable Income
17.65% <$17,850
22.65% $17,850-72,500
32.65% $72,500-113,700
26.45% $113,700-146,400
29.45% $146,400-223,050
34.45% $223,050-250,000
35.35% $250,000-398,350
37.35% $398,350-450,000
41.95% >$450,000
2013 Total Marginal Tax Rate For Married Employees (Two Earners)
Marginal Tax Rate Taxable Income
17.65% <$17,850
22.65% $17,850-72,500
32.65% $72,500-146,400
35.65% $146,400-223,050
40.65% $223,050-$227,400
34.45% $227,400-250,000
35.35% $250,000-398,350
37.35% $398,350-450,000
41.95% >$450,000

 

2013 Total Marginal Tax Rate for Single Employee
Marginal Tax Rate Taxable Income
17.65% <$8925
22.65% $8925-36,250
32.65% $36,250-87,850
35.65% $87,850-113,700
29.45% $113,700-183,250
34.45% $183,250-200,000
35.35% $200,000-398,350
37.35% $398,350-400,000
41.95% >$400,000

 

Looking at the tax brackets in this way, you realize just how high your marginal tax rates can be, and this doesn’t even include state and local taxes. It also displays the regressive nature of the payroll taxes. Although lower earners get more relative benefit from social security, many actually pay more in social security tax than in federal income tax, especially after all the deductions and credits they qualify for.  The income tax structure is much more of a flat tax when accounting for those taxes.  It is interesting to note that a $350,000 earner (single) has a lower marginal tax rate than a $100,000 earner.   I also find the tiny 37.35% bracket for the single earner a bit funny.  But there’s nothing funny about dual earners with combined taxable income of $225K having to pay a 40.65% marginal rate.  What if you are self-employed? Well, things get worse.

2013 Total Marginal Tax Rate for Married Self-employed (One Earner)
Marginal Tax Rate Taxable Income
24.5% <17,850
29.2% $17,850-72,500
38.4% $72,500-113,700
27.5% $113,700-146,400
30.5% $146,400-223,050
35.4% $223,050-250,000
36.2% $250,000-398,350
38.1% $398-350-450,000
42.7% >$450,000

 

2013 Total Marginal Tax Rate for Married Self-employed (Two earners)
Marginal Tax Rate Taxable Income
24.5% <17,850
29.2% $17,850-72,500
38.4% $72,500-146,400
41.2% $146,400-223,050
45.8% $223,050-227,400
35.4 $227,400-250,000
36.2% $250,000-398,350
38.1% $398-350-450,000
42.7% >$450,000

 

2013 Total Marginal Tax Rate For Single Self-Employed
Marginal Tax Rate Taxable Income
24.5% <$8925
29.2% $8925-36,250
38.4% $36,250-87,850
41.2% $87,850-113,700
30.5% $113,700-183,250
35.4% $183,250-200,000
36.2% $200,000-398,350
38.1% $398,350-400,000
42.7% >$400,000

These tables include the employee and employer portion of social security and medicare taxes, reduced by the self-employment tax deduction. The alarming size of the “donut hole” is impressive. A single taxpayer earning $88,000 has nearly the same higher marginal tax rate as a star NFL quarterback. Likewise, a married taxpayer earning $73,000 in taxable income pays at a higher marginal rate than one with six times the taxable income. What’s the moral of the story? Get to that $113,700 (each) limit as quickly as possible to lower your marginal tax rates.  Just for fun, I thought I’d consider what happened if you added on some state tax.  I decided to go with California, not only because it is highly toxic to physicians (low MediCal reimbursement, high cost of living, high taxes), but mostly just because the taxes for those living on Manhattan are just too darn complicated.  I accounted for the deductibility of both payroll taxes and state income taxes, but made a simplifying assumption that taxable income is the same for California and the Federal taxes.  I also ignored the AMT.

California + Fed Total Marginal Rate Single Self-Employed
Marginal Tax Rate Taxable Income
25.4% <$7124
26.2% $7124-8925
30.7% $8925-16,890
32.2% $16,890-26,657
33.8% $26,657-36,250
42.4% $36,250-37,005
43.8% $37,005-46,766
44.7% $46,766-87,850
47.1% $87,850-113,700
37.1% $113,700-183,250
41.5% $183,250-398,350
43.3% $398,350-400,000
47.4% $400,000-1,000,000
49.8% >$1,000,000

 

No wonder Phil Mickelson is talking about moving to Texas.  49.8 cents of nearly every dollar he earns goes to the tax man.  To make matters worse,  Joe the Plumber making $88K is paying at nearly the same rate.  No matter how you slice it, about half of the typical physician salary is gone before it hits your wallet.  Earning less isn’t going to lower your marginal rate in states like this, but it will decrease your total tax bill.  A better solution is to put your money into tax-deferred retirement accounts, lowering your taxable income and thus saving taxes at these high marginal rates, then moving to Nevada or Texas in retirement and withdrawing the money at effective rates of less than 20%, perhaps even less than 10% depending on your other income sources.