The question has to do with the standard deduction for a single person. Suppose in ere you had an income of only $12,000. Would you only pay taxes on $6,300 after subtracting the standard deduction ($5,700)?
Tax issue
You would also have one exemption, which in 2009 was $3,650, so you _could_ pay tax on up to $2,650. The standard deduction and personal exemption should increase every year with inflation
This could be reduced further with top of the line reductions, such as an HSA. Obamacare may affect this starting in 2014
How it is taxed depends on the source of the income. Under the Bush tax cuts which may expire this year, dividends and long-term capital gains would be taxed at 0% at this income level. Earned income (from a job) or interest income would be taxed at 10%.
If the Bush tax cuts expire, dividends and long-term capital gains, as well as the income, will be taxed at 15%.
This could be reduced further with top of the line reductions, such as an HSA. Obamacare may affect this starting in 2014
How it is taxed depends on the source of the income. Under the Bush tax cuts which may expire this year, dividends and long-term capital gains would be taxed at 0% at this income level. Earned income (from a job) or interest income would be taxed at 10%.
If the Bush tax cuts expire, dividends and long-term capital gains, as well as the income, will be taxed at 15%.