Why do we have tax brackets?
Tax brackets are an integral part of America's "progressive" tax system. As you earn more money, your income hits thresholds. At each threshold, the income above the line is taxed at a progressively higher rate.
When looking at the brackets, it's essential to remember that the income triggering each tax rate is your adjusted gross income, not the earnings on your W-2.
In other words, what you pay is based on your taxable income — wages and other income, such as interest — minus certain deductions and other adjustments. Then, what's left is divided into chunks that are taxed at different rates to determine your ultimate tax bill.
The highest rate, paid on the top bracket of your income, is called your marginal tax rate. That's not to be confused with your effective tax rate, which is the average percentage of your income that you pay in taxes.
Does it sound complex and confusing? That's because it is — which is why there have long been calls for a much simpler income tax system, maybe one with a single flat tax rate that everybody would pay.
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2022 federal income tax brackets (for 2023)
These are the brackets for taxes due in 2023, on income earned in 2022. The tax rates haven't changed since the 2017 tax law signed by President Donald Trump.
For individual taxpayers
| Portion of income | Tax rate |
|---|---|
| Up to $10,275 | 10% |
| $10,276 to $41,775 | 12% |
| $41,776 to $89,075 | 22% |
| $89,076 to $170,050 | 24% |
| $340,101 to $431,900 | 32% |
| $215,951 to $539,900 | 35% |
| $647,851 and higher | 37% |
For couples filing jointly
| Portion of income | Tax rate |
|---|---|
| Up to $20,550 | 10% |
| $20,551 to $83,550 | 12% |
| $83,551 to $178,150 | 22% |
| $178,151 to $340,100 | 24% |
| $340,101 to $431,900 | 32% |
| $431,901 to $647,850 | 35% |
| $647,851 and higher | 37% |
2023 federal income tax brackets (for 2024)
The IRS has announced that these will be the brackets for taxes due in 2024, on income earned in 2023.
For individual taxpayers
| Portion of income | Tax rate |
|---|---|
| Up to $11,000 | 10% |
| $11,001 to $44,725 | 12% |
| $44,726 to $95,375 | 22% |
| $95,376 to $182,100 | 24% |
| $182,101 to $231,250 | 32% |
| $231,251 to $578,125 | 35% |
| $578,125 and higher | 37% |
For couples filing jointly
| Portion of income | Tax rate |
|---|---|
| Up to $22,000 | 10% |
| $22,001 to $89,450 | 12% |
| $89,451 to $190,750 | 22% |
| $190,751 to $364,200 | 24% |
| $364,201 to $462,500 | 32% |
| $462,501 to $693,750 | 35% |
| $693,750 and higher | 37% |
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How tax brackets work
Here's how the tax brackets will work this year.
- If you file your 2022 tax return as a single and had a low adjusted gross income of under $10,275 last year, your tax rate is 10%.
- If you file as a single and had adjusted gross income of $85,000 in 2022, you pay: a 10% tax on the first $10,275; a 12% tax on the next amount, up to $41,775; and a 22% tax on the final portion, up to $85,000.
- If you and your spouse file your 2022 taxes jointly and had adjusted gross income of $500,000 last year, you pay: a 10% tax on the first $20,550; a 12% tax on the next slice, up to $83,550; a 22% on the portion going up to $178,150; a 24% tax on the next section, up to $340,100; a 32% tax on the portion after that, going up to $431,900; and a 35% tax on the final chunk, up to $500,000.
As you earn more money, you'll want to take steps to reduce your taxable income and drop down into a lower top tax bracket. Directing some of your earnings into an individual retirement account (IRA) or 401(k) retirement savings can help accomplish that.
You may decide you need to speak with an accountant or a tax professional in order to score well in this non-basketball version of bracketology.
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