Total Tax

Total tax, in the context of personal income tax, is the composite total of all taxes owed by a taxpayer for the year. This number is essentially the penultimate point in the tax formula. It accounts for all credits and deductions due the taxpayer but not any tax payments made during the year. Total tax is then compared with payments made to see whether a refund is due or there is a balance owed.

The total tax is progressive and based on the payer’s income. With the Tax Cuts and Jobs Act of 2017, the federal government authorized seven tax brackets ranging from 10 percent to 37 percent, starting in the 2018 tax year. The previous tax law also had seven brackets, but the rates and thresholds have changed.

For a married couple filing jointly in 2018, the lowest total tax applies to income up to $19,050. Thus if the couple earned $19,000 they would owe exactly $1,900 in federal income tax. A second couple would pay the highest percentage on income over $600,000. But note that the tax is graduated: the high-earning couple would owe just 10 percent on the first $19,050, the same as the first couple, and so on through all the brackets. The only income taxed at 37 percent would be earnings over $600,000. As such, a couple earning $80,000 in 2018 would owe a total tax of $9,479.

Total tax includes income, the alternative minimum tax and self-employment tax. It is calculated after deductions, which with the latest tax reform have been simplified and increased somewhat for most filers. For example, under the pre-2018 tax system, married couples filing jointly were entitled to a standard deduction of $13,000. Now they will receive a standard deduction of $24,000. That seems like a huge jump, but the government has also eliminated the individual exemption of $4,050, or $8,100 for a couple. With that difference, the standard deduction is effectively $15,900. That’s more than previously, but not by much. Moreover, the higher standard deduction will mean fewer homeowners can claim the mortgage interest deduction and other personal deductions, which must be higher than the standard deduction to take effect.

Finally note that while the total tax is indeed total, it is hardly permanent. Many parts of the 2017 tax reform act have sunset provisions. The most important from the standpoint of middle class taxpayers will be the expiration at the end of 2025 of most of the new deduction and exemption rules. Unless Congress acts before then, the total tax for most filers will then revert more or less to the previous levels.