The United States uses a progressive tax system, which means different portions of your income are taxed at different rates and that typically the more taxable income you have the higher the tax rate. Learn more about this system and how it impacts you in this article about tax brackets.
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Key Takeaways • Different portions of your income can be taxed at different rates. Tax brackets specify the tax rate you will pay on each portion of your taxable income. • Your tax rate typically increases as your taxable income increases. The overall effect is that higher-income taxpayers usually pay a higher rate of income tax than lower-income taxpayers. • Your effective tax rate is the percentage of your income that you owe in taxes. To find it, divide your total tax by your total income. • Your marginal tax rate refers to the tax rate on the last dollar of your taxable income, or the highest tax bracket you fall under.
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What are income tax brackets?
Tax brackets show you the tax rate you will pay on each portion of your taxable income. For example, if you are single, the lowest tax rate of 10% is applied to the first $10,275 of your taxable income in 2022. The next chunk of your income is then taxed at 12%, and so on, up to the top of your taxable income.
The progressive tax system increases the tax rate as taxable income increases. The overall effect is that higher-income taxpayers typically pay a higher rate of income tax than lower-income taxpayers.
What is an effective tax rate?
As your income increases throughout the year, you will likely move from one tax bracket to another as your total income increases. The highest bracket that you are taxed in is often referred to as your marginal tax rate. The actual percentage of your total income at the end of the year that goes to the IRS is usually different and is typically referred to as your effective tax rate. The rate you pay on the last dollar you earn (top marginal tax rate) is usually much higher than your effective tax rate.
For example, if half of your income is taxed at 10% and the other half at 12%, then your marginal tax rate is 12% (your top rate) and your effective tax rate of 11% (your average rate). This means that 11 cents of every dollar you earned this year goes to the IRS.
What is a marginal tax rate?
Your marginal tax rate refers to the tax rate on last dollar of your taxable income, or the highest tax bracket you fall under.
For example, if you’re a single filer earning a taxable income of $75,000, your marginal tax rate would be 22% for the 2022 tax year. Even if your taxable income increased by $10,000, your marginal tax rate would still be the same.
But, if your taxable income increased to $98,000, the last $8, 924 would fall under the 24% tax bracket. So, while most of your salary falls under the 22 % tax bracket, your marginal tax rate would be 24%.
Read this post for help understanding the differences between marginal and effective tax rates, and how to lower your effective tax rate.
How many tax brackets are there?
For 2022 and 2023, there are seven different federal income tax brackets, with tax rates set based on your income and tax filing status, such as whether you file Single or Married Filing Jointly.
The seven tax brackets range from 10 to 37%, with an individual’s taxable income falling under different tax brackets to be taxed at different rates due to the United States’ progressive tax system.
TurboTax Tip: There are seven different tax brackets for 2022 with tax rates of 10, 12, 22, 24, 32, 35, and 37%. You can use the TurboTax Tax Bracket Calculator to determine your estimated tax rate.
What are the current federal tax brackets?
As stated, there are seven different tax brackets with tax rates of 10, 12, 22, 24, 32, 35, and 37%. How much you will actually owe depends on both your income and your filing status as well as several other factors.
For example, in 2022, if you file as Single, you will pay 10% on the first $10,275 of taxable income, but if you are Married Filing Jointly, you and your spouse remain in that lower tax bracket until your income exceeds $20,550.
The 2022 tax brackets are:
Single:
- 10%: $0 to $10,275
- 12%: $10,276 to $41,775
- 22%: $41,776 to $89,075
- 24%: $89,076 to $170,050
- 32%: $170,051 to $215,950
- 35%: $215,951 to $539,900
- 37%: $539,901 or more
Married Filing Jointly:
- 10%: $0 to $20,550
- 12%: $20,551 to $83,550
- 22%: $83,551 to $178,150
- 24%: $178,151 to $340,100
- 32%: $340,101 to $431,900
- 35%: $431,901 to $647,850
- 37%: $647,851 or more
Married Filing Separately:
- 10% $0 to $10,275
- 12%: $10,276 to $41,775
- 22%: $41,776 to $89,075
- 24%: $89,076 to $170,050
- 32%: $170,051 to $215,950
- 35%: $215,951 to $323,925
- 37%: $323, 926 or more
Head of Household:
- 10%: $0 to $14,650
- 12%: $14,651 to $55,900
- 22%:$55,901 to $89,050
- 24%: $89,051 to $170,050
- 32%: $170,051 to $215,950
- 35%: $215,951 to $539,900
- 37%: $539,901 or more
Use our 2022 tax bracket calculator to determine your estimated tax rate.
Similar to most years, the IRS has made adjustments to the tax brackets for 2023 due to inflation, which means some individuals may find themselves in lower tax brackets than in previous years. Below are the current federal tax brackets for 2023.
Single:
- 10%: $0 to $11,000
- 12%: $11,001 to $44,725
- 22%: $44,726 to $95,375
- 24%: $95,376 to $182,100
- 32%: $182,101 to $231,250
- 35%: $231,251 to $578,125
- 37%: $578,126 or more
Married Filing Jointly:
- 10%: $0 to $22,000
- 12%: $22,001 to $89,450
- 22%: $89,451 to $190,750
- 24%: $190,751 to $364,200
- 32%: $364,201 to $462,500
- 35%: $462,501 to $693,750
- 37%: $693,751 or more
Married Filing Separately:
- 10%: $0 to $11,000
- 12%: $11,001 to $44,725
- 22%: $44,726 to $95,375
- 24%: $95,376 to $182,100
- 32%: $182,101 to $231,250
- 35%: $231,251 to $346,875
- 37%: $346,876 or more
Head of Household:
- 10%: $0 to $15,700
- 12%: $15,701 to $59,850
- 22%: $59,851 to $95,350
- 24%: $95,351 to $182,100
- 32%: $182,101 to $231,250
- 35%: $231,251 to $578,100
- 37%: $578,101 or more
Knowing next year’s tax brackets can help you prepare for future taxes. Every year, we update our tax bracket calculator to make it easier.
How do deductions affect your tax bracket?
Deductions are a way for you to reduce your taxable income, which means less of your income is taxed in those higher tax brackets. For example, if your highest tax bracket this year is 32%, then claiming a $1,000 deduction saves you $320 in taxes (32% of $1,000). However, if your top bracket is 12%, that same deduction only saves you $120 (12% of $1,000) in tax.
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