Answer

I wonder if we, the general public, are interpreting the marginal tax rate incorrectly and thereby over paying the IRS. In the article "Tax laws penalize two-income households" written by Jeff Schnepper, it states that "taxpayers pay 15% on the first $25,350 earned in 1998 and 28% for all money earned between $25,350 and $61,400." My thought is then, why do I get taxed at the rate of 28% on all earnings if I earn a total of $55,000? Is it that I should have only paid the rate of 28% on $29,650, which is that portion that exceeded $25,350 and 15% on the first $25,350? In other words, I may have over paid the IRS $3,295.50. By paying via a single rate of 28% on my total income, as opposed to paying at a terraced rate. Would you please clarify this for me?

"Marginal tax rate" refers to the rate of tax paid on the last dollar of individual or household (if two workers) income. It is NOT the rate charged on your entire income. If your income is under $100,000, marginal tax rates are built into the tax tables and you don't have to calculate anything. It's all done for you. Higher earners have to use the IRS tax schedules to calculate their tax bill. Using your words, yes, tax rates are "terraced." There are various income levels where certain tax brackets "kick in." In 1999, for example, a single taxpayer paid tax at the 15% rate on income up to $25,750. Between $25,751 and $62,450, the rate was 28%, and from $62,451 to $130,250, the rate was 31%. As for tax rates penalizing married couples, yes, this can happen to some couples. Those where there are two earners, especially when they earn a similar income, usually get hurt the most. This is because their combined taxable income often places them in a higher tax bracket than two people filing as individual taxpayers.