Income Tax Brackets: How to Find Out Which Bracket You're In

It is always important to factor income taxes into any budget that you make during the year, especially if you're self-employed or are an independent contractor. If you're self-employed, you are the only person responsible for making sure that your taxes are paid on time and in full. In a traditional employer/employee agreement, the employer will automatically deduct a certain amount of money from your check each pay period depending on which income tax bracket you fall into. When you are self-employed, you have no such luxury. Making sure that you know which tax bracket you fall into will help make sure you don't over or under pay on your taxes, which can cause serious problems down the road and may mean that you get hit with large financial penalties levied against you from the government.

When talking about the income tax bracket that you fall into, it is important to first add up the total amount of money you made during the year. If you are a salary employee whose income doesn't change regardless of how many hours you worked, the calculation will be very simple. However, if you are an hourly employee who works a varying amount of time during each pay period, you will likely have to wait until the last pay period of the year before you can get any real indication of how much money you made over that time. Talk to the human resources department at your place of employment (or make sure you save your pay stubs from each check throughout the year) to find out how much money you made. Your employer is also legally required to send you forms specifically for tax purposes after the close of the year to help you figure out this information.

Once you know how much money you made, go through and find out if you qualify for any deductions or credits. Credits are automatic tax-free allowances that you are given if you meet certain types of criteria. In the United States, for example, individuals who purchase a new home throughout the year are given a tax credit on their income taxes. In the United Kingdom, individuals who are legally blind are also given a significant addition to their existing personal allowances due to the presence of a disability. Make sure that you claim any credits or deductions that you are entitled to in order to make sure that you are paying the lowest possible amount on taxes.

Once you have reduced your income thanks to deductions and credits, reduce it farther by factoring in your personal allowance. The personal allowance will depend on your age and how much money you made, so make sure you are calculating using the right amount. If you are a 28-year old who made 45 thousand pounds during the year, for example, you are given 9,440 pounds as a personal allowance. Subtract the amount of money you made by your personal allowance to find out how much taxable income you have for the period.

 
Next, find out the current income tax bracket breakdown for the United Kingdom and figure out your tax rate. Depending on how much money you made you will be charged at a rate of either 10 percent, 40 percent or 45 percent. The vast majority of all people will be charged at the basic 20 percent rate. However, if you were lucky enough to make more than 150,000 pounds during the year you will be charged at the higher 45 percent rate, also called the "additional" rate. It is entirely possible to move from one tax bracket to the next and back again throughout the years if your pay fluctuates in any significant way over that period of time, especially if you were already close to the border between two brackets to begin with.

Kevin Campbell the author of this aritlce advises readers to visit the help pages at uSwitch for more info about income tax brackets.