tax brackets work
Your tax bracket tells you how much tax you’ll have to pay on each part of your income. Below, we talk about some helpful examples and bust some tax bracket myths.
The progressive tax system makes sure that everyone pays the same amount of tax on the same amount of taxable income. Overall, this means that people with more money pay more taxes.
What tax bracket are you in, and what does that really mean?
In general, your tax bracket is the rate of tax you pay on your highest dollar of taxable income. It’s not the tax rate you pay on all of your income after adjustments, deductions, and exemptions. Your individual tax rates for each extra dollar of income are only based on your bracket (ignoring the effects of rounding).
Whether you are single, married and filing jointly, married and filing separately, or the head of a household also affects which tax bracket you fall into.
In the U.S., we have federal tax brackets because our income tax system is progressive. That means that the tax rate you pay goes up as your income goes up. The more money you make, the higher your tax bracket and the amount of taxes you have to pay.
In a progressive tax system, tax rates are set so that people with more money can pay a higher tax rate.
Overall, people with low incomes pay less taxes and pay taxes on a smaller share of their income.
How tax brackets work
Say you’re single with no dependents, and your taxable income is $9,000. Your marginal tax rate, according to the Federal Income Brackets chart below, is 10 percent. You pay $900 in income tax. That’s simple.
What if your taxable income is $19,000?
As a single filer, you’re now in the 12 percent tax bracket. However, that doesn’t mean you pay 12 percent on all your income.
Instead, you pay 10 percent on the first $10,275, plus 12 percent of the amount over $10,275.
Here’s the math:
| First tax bracket: $10,275 X 10% = | $1,027.50 |
| + Second tax bracket: ($19,000 – $10,275) X 12% = | $1,047.00 |
| Total income tax = | $2,074.50 |
What if your taxable income is $115,000?
As a single filer, you moved up to the 24 percent bracket, so things get a bit more complicated. In this case:
You pay 10 percent on the first $10,275
plus 12 percent of the amount between $10,275 and $41,775
plus 22 percent of the amount between $41,775 and $89,075
plus 24 percent of the amount over $89,075.
Here’s the math (we’ll round to the nearest dollar this time):
| First tax bracket: $10,275 X 10% = | $1,027 |
| + Second tax bracket: ($41,775 – $10,275) X 12% = | $3,780 |
| + Third tax bracket: ($89,075 – $41,775) X 22% = | $10,406 |
| + Fourth tax bracket: ($115,000 – $89,075) X 24% = | $6,222 |
| Total income tax = | $21,435 |
Find your bracket in the following chart based on your filing status and 2022 income:
What is my effective tax rate?
The percentage of your income that you pay in taxes is your effective tax rate (ETR). It is found by dividing your total federal income tax liability by your taxable income, which includes both earned and unearned income.
In the above example, if you made $115,000, your effective tax rate would be:
The total income was $115,000, and the tax bill was $21,435.
In this situation, your highest tax bracket would be 24%, but the average tax rate on your income would be 18.6%.
Remember that your ETR usually doesn’t show any state or local taxes you may owe.
Federal income tax brackets
2022
tax brackets work
| Tax rate | Single filer | Joint filers | Married filing separately | Head of household |
|---|---|---|---|---|
| 10% | $0 to $10,275 | $0 to $20,550 | $0 to $10,275 | $0 to $14,650 |
| 12% | $10,276 to $41,775 | $20,551 to $83,550 | $10,276 to $41,775 | $14,651 to $55,900 |
| 22% | $41,776 to $89,075 | $83,551 to $178,150 | $41,776 to $89,075 | $55,901 to $89,050 |
| 24% | $89,076 to $170,050 | $178,151 to $340,100 | $89,076 to $170,050 | $89,051 to $170,050 |
| 32% | $170,051 to $215,950 | $340,101 to $431,900 | $170,051 to $215,950 | $170,051 to $215,950 |
| 35% | $215,951 to $539,900 | $431,901 to $647,850 | $215,951 to $323,925 | $215,951 to $539,900 |
| 37% | $539,901 or more | $647,851 or more | $323,926 or more | $539,901 or more |
Busting a tax bracket myth
Some people think that if their income goes up and they move into a higher tax bracket, they will have to pay taxes on all of their income at a higher rate. Tax filers think this means they may have less money left over than if they had made less money.
If you look at the examples above, you can see that’s not true.
Every dollar you make only changes your federal income tax rate and how much tax you have to pay on your extra money. It doesn’t change how much money in lower tax brackets is taxed.
Unless you are in the lowest bracket, you are in at least two brackets. For instance, if you are in the 24 percent tax bracket, you pay taxes at four different rates: 10, 12, 22, and 24 percent.
Based on the tax brackets, if you make more money, you always have more money after taxes. But rates aren’t the only part of your tax bill that matters. Some tax breaks, like tax credits for college, go away when your income goes up. In some tax situations, it may be best to stay out of tax brackets with higher rates if you can.
Using tax software las a planning tool can help you see how your tax benefits and final tax bill change based on how much money you make.
Use the tax code to make better decisions
Let’s say you’re thinking about working extra hours to make an extra $1,000 in a year.
If you know you’re in the 24 percent tax bracket, that extra money will cost you $240 in taxes.
You’ll also have to pay 7.65% in taxes for Social Security and Medicare, as well as any state tax and any other required taxes.
It would be great to make an extra $1,000, but don’t be surprised if one-third or more of your overtime pay goes to taxes.
There are ways to lower the amount of taxes you have to pay on that extra money. For instance, if you itemize your taxes and are thinking about giving to charity before the end of the year, knowing your income tax bracket and filing status can help you figure out how much your donation will save you in taxes. Say you’re in the 22 percent tax bracket. For every $100 you give to charity, you save $22 in federal income taxes. (Note that if you take the standard deduction, you can’t use this tax deduction.)
Knowing your tax rate can also help you decide if you want to put money into a retirement plan. You’ll pay less state and federal income tax if you put money into a traditional 401(k) plan or traditional IRA. In turn, this makes it easier for you to give.
