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.
Understanding 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.
Your effective tax rate
While it's likely you will move from one tax bracket to another as your total income increases throughout the year, known as your marginal tax rate, the actual percentage of your total income at the end of the year that goes to the IRS is different and is referred to as your effective tax rate. The rate you must 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 percent and the other half at 12 percent, then your marginal tax rate is 12 percent (your top rate) and your effective tax rate of 11 percent (your average rate). This means that 11 cents of every dollar you earned this year goes to the IRS.
Current tax brackets
For 2022, there are seven different tax brackets with tax rates of 10, 12, 22, 24, 32, 35, and 37 percent. 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 are a single filer, you will pay 10 percent on the first $10,275 of income, but if you are married filing jointly, you and your spouse remain in that lower tax bracket until your income exceeds $20,550.
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 percent, then claiming a $1,000 deduction saves you $320 in taxes (32 percent of $1,000). However, if your top bracket is 12 percent, that same deduction only saves you $120 (12 percent of $1,000) in tax.
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