The Federal Income Tax System 359TABLE 9-6 Individual Tax Rates for the 2001 Tax YearINDIVIDUAL TAX TABLE FOR THE 2001 TAX YEAR
Plus This
If an Individual’s He/She Pays This Percentage Average Tax
Taxable Income Amount on the on the Excess Rate at Top
Is Between: Base of the Bracket Over the Base of Bracket
(1) (2) (3) (4) (5)
$ 0 $ 27,050 $ 0.00 15.0% 15.0%
27,050 65,550 4,057.50 27.5 22.3
65,550 136,750 14,645.00 30.5 26.6
136,750 297,350 36,361.00 35.5 31.4
297,350 and up 93,374.00 39.1 39.1MARRIED(JOINT RETURN) TAX TABLE FOR THE 2001 TAX YEAR
Plus This
If a Couple’s It Pays This Percentage Average Tax
Taxable Income Amount on the on the Excess Rate at
Is Between: Base of the Bracket Over the Base Top of Bracket
(1) (2) (3) (4) (5)
$ 0 $ 45,200 $ 0.00 15.0% 15.0%
45,200 109,250 6,780.00 27.5 22.3
109,250 166,500 24,393.75 30.5 25.1
166,500 297,350 41,855.00 35.5 29.7
297,350 and up 88,306.75 39.1 39.1Notes:
a. These are the tax rates for the 2001 tax year. The income ranges at which each tax rate takes effect, as well as
the ranges for the additional taxes discussed below, are indexed with inflation each year, so they will change from
those shown in the table.
b. The average tax rate approaches 39.1 percent as taxable income rises without limit. At $1 million of taxable in-
come, the average tax rates for single individuals and married couples filing joint returns are 36.8 percent and 36.3
percent, respectively, while at $10 million they are 38.9 and 38.8 percent, respectively.
c. In 2001, a personal exemptionof $2,900 per person or dependent could be deducted from gross income to de-
termine taxable income. Thus, a husband and wife with two children would have a 2001 exemption of 4 $2,900
$11,600. The amount of the exemption is scheduled to increase with inflation. However, if gross income exceeds
certain limits ($199,450 for joint returns and $132,950 for single individuals in 2001), the exemption is phased out,
and this has the effect of raising the effective tax rate on incomes over the specified limit by about 0.5 percent per
family member, or 2.0 percent for a family of four. In addition, taxpayers can claim itemized deductionsfor charita-
ble contributions and certain other items, but these deductions are reduced if the gross income exceeds $132,950
(for both single individuals and joint returns), and this raises the effective tax rate for high-income taxpayers by an-
other 1 percent or so. The combined effect of the loss of exemptions and the reduction of itemized deductions is
about 3 percent, so the marginal federal tax rate for high-income individuals goes up to about 42.1 percent.
In addition, there is the Social Security tax, which amounts to 6.2 percent (12.4 percent for a self-employed per-
son) on up to $80,400 of earned income, plus a 1.45 percent Medicare payroll tax (2.9 percent for self-employed
individuals) on allearned income. Finally, older high-income taxpayers who receive Social Security payments must
pay taxes on 85 percent of their Social Security receipts, up from 50 percent in 1994. All of this pushes the effective
tax rate up even further.
d. The Tax Relief Act of 2001 made major changes in the Tax Code, including reducing tax rates and creating a new
bracket (at $6,000 for individuals and $12,000 for married couples) with a 10 percent tax rate. Rather than include
this bracket on the 2001 tax schedules, most taxpayers in 2001 received a rebate ($300 for individuals, $600 for
couples) to reflect the benefit of the new bracket. The new bracket will appear on tax schedules after 2001.See Ch 09 Tool Kit.xls
for details.