Average Tax Rate

O YOU'RE ANGRY that those juicy stock options you exercised knocked you into the 36% tax bracket? Well, if it's any consolation, you don't have to pay the 36% tax rate on all your income. That's because you're only taxed at the 36% rate on income beyond a certain threshold — $128,100 for a single filer in 1998. Those who are married, filing jointly don't reach the mark until $155,950. Income up to that point is taxed at 15%, 28% and 31%. So, your average tax rate is actually much lower than the highest rate you pay. Here's how it works.

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Say, you're single and had taxable income of $140,000 in 2000. And let's say your gross income was $155,000. Well, your income up to $26,250 is taxed at 15%. From $26,251 up to $63,550, it's taxed at 28%. From $63,551 to $128,100, the rate is 31%. And you'll pay 36% on the remaining $7,400. (The top rate, 39.6%, kicks in at $288,350 for singles.) In this case, your average tax rate (the proportion of gross income you'll pay in taxes) is about 25%.

Plug your own numbers into our calculator to find your own effective tax rate and see how it changes at different income levels.