Taxes are confusing enough, but tax brackets make it even more so. Studies show nearly half of all Americans didn’t know which tax bracket they fell into, about a third don’t understand tax laws, and the majority failed a short quiz about taxes.
The U.S. uses a progressive tax system – meaning that the more a person makes, the more they’ll owe. This is supposed to create an equal system.
The rate that Americans pay is broken up into seven tax brackets. So let’s look at how those brackets break down and what you can do to lower the overall tax rate you pay without breaking any rules.
Marginal vs effective tax rates
A filer’s percentile depends on how much money they earn during that year. These are referred to as marginal tax rates and they aren’t applied to a person’s entire income.
The first $10,275 that anyone makes is taxed at 10 percent. The next $31,500 that same person makes is taxed at 12 percent.
So even if an individual is in the 22nd percentile, not all of their income will be taxed at 22 percent. For example, if someone is a single filer and made $75,000 in taxable income, the first $10,275 will be taxed at 10 percent. The next $31,500 will be taxed at 12 percent and the last of the $33,225 will be taxed at 22 percent.
If their income was taxed as a whole at 22 percent, they’d owe $16,500. But because of the progressive system, they’d actually owe $7,309.
2023 federal income tax brackets (for tax returns due April 15, 2024)
Click on the filing status below that you use to file taxes to see how the seven brackets are split up.
Single Filers
| 2023 Tax Rate | Income Range |
|---|---|
| 10% | $0 – $11,000 |
| 12% | $11,000 to $44,725 |
| 22% | $44,725 to $95,375 |
| 24% | $95,375 to $182,100 |
| 32% | $182,100 to $231,250 |
| 35% | $231,250 to $578,125 |
| 37% | $578,125 or more |
Married Filing Jointly
| 2023 Tax Rate | Income Range |
|---|---|
| 10% | $0 to $22,000 |
| 12% | $22,000 to $89,450 |
| 22% | $89,450 to $190,750 |
| 24% | $190,750 to $364,200 |
| 32% | $364,200 to $462,500 |
| 35% | $462,500 to $693,750 |
| 37% | $693,750 or more |
Married Filing Separately
| 2023 Tax Rate | Income Range |
|---|---|
| 10% | $0 to $11,000 |
| 12% | $11,000 to $44,725 |
| 22% | $44,725 to $95,375 |
| 24% | $95,375 to $182,100 |
| 32% | $182,100 to $231,250 |
| 35% | $231,250 to $346,875 |
| 37% | $346,876 or more |
Head of Household
| 2023 Tax Rate | Income Range |
|---|---|
| 10% | $0 to $15,700 |
| 12% | $15,700 to $59,850 |
| 22% | $59,850 to $95,350 |
| 24% | $95,350 to $182,100 |
| 32% | $182,100 to $231,250 |
| 35% | $231,250 to $578,100 |
| 37% | $578,100 or more |
The effective tax rate is the average of your marginal rates. Marginal rates are the tax rate you pay on an additional dollar of income. The federal marginal rate increases as income rises, meaning that your marginal rate will more than likely be lower than your tax bracket. Someone in the 22nd percentile would have an effective rate of nearly 15 percent.
Determining your federal tax bracket
First, choose your filing status. Are you a single or joint filer? If you’re married, it might be best to file jointly. If you file as a couple, you can combine your income and deductions.
Even if you’re married, you can file individually. You and your spouse would have to separate your assets and expenses. But some states still require married couples who file separately to combine certain aspects of their income and split the tax returns.
Once you know how you’ll be filing, you need to get an accurate picture of your taxable income. You aren’t taxed on your gross income for the year – things like disability benefits and child support are tax-exempt. Your taxable income includes your wages and most other income like gambling winnings, savings interest, and even debt cancellation.
Even if you’re unemployed, you can still be taxed on the benefits you receive.
Estimate your Federal and State tax burden. See how much you will owe.
What can save you money
After you calculate your total income for the year and subtract any deductions, you can see which percentile you fit into.
Every filer has a standard deduction – a portion of your income that is tax-exempt. Single taxpayers, and married couples that are filing separately, have a standard deduction of $12,950. The deductible for married couples who file jointly increased to $25,900 in 2022.
There are many legal ways to avoid paying more taxes – just ask any billionaire. You can:
- Contribute to a 401(k) or traditional IRA. These contributions can be deducted from your taxes and the interest on these accounts are tax-free until you retire.
- Take advantage of business expenses. If you work from home or freelance, you can get deductions for travel or internet costs. You can also get a deduction if you have a home office.
- Donate to charity. In 2022 taxpayers must return to itemizing deductions on Schedule A in order to take a charitable tax deduction. Deducting a certain level of cash contributions for their income taxes expired in 2021 and was not renewed by Congress.
- Contribute to a Health Savings Account (HSA). After putting the money in the account, you can make tax-free withdrawals for certain medical purchases.
- Deduct the interest you pay on certain types of good debt. You can deduct up to $2,500 per year for student loan interest and reduce mortgage interest on the first $1 million of the mortgage on a primary residence or even a second home.
Your income after all of the deductions will determine your tax bracket. There are also tax credits. They don’t affect your taxable income but directly reduce the amount of taxes you owe which can also lead to a heftier refund. You can get credits for things like having children or enrolling in higher education.
The earned income tax credit (EITC) benefits low to moderate-income workers by compensating for social security taxes. For the 2022 tax year, some tax credits that were expanded in 2021 will return to pre-pandemic standards, meaning that affected taxpayers will most likely receive a smaller return compared to the previous tax year.
What can cost you money
After you pay your federal taxes, you probably still have to face state taxes. The good news is, the rates are usually cheaper.
There are seven states that don’t require any individual income taxes but most others do. Ten states have a flat rate on their incomes taxes, so there are no tax brackets.
Many states have tax brackets but the increments are so low that they’re essentially flat rates. For example, Alabama’s highest bracket taxes income over $3,000.
Although most states have progressive tax rates like the federal government, they’re lower and typically range from 1 to 10 percent. Others, like California, will tax up to 13 percent in addition to property taxes.
Each state has its own taxation and revenue department, you can visit your state’s website to learn more about individual tax rates.
Other forms of taxes aside from income taxes
There are more to taxes than the W-2 form. It’s important to understand what else you may owe taxes on – otherwise, you might face an unpleasant surprise when tax season comes around.
The average employee likely has taxes taken directly from their paychecks throughout the year, but not freelancers. If you freelance or have a side gig, you’ll have to fill out a 1099 form. Since your taxes aren’t automatically withheld, you should be putting money aside so you’re ready to pay up at the end of the year.
While you may have to pay more in taxes, you can also report more of your expenses and lower your overall bill.
If you sell a home, stocks, or even jewelry that went up in value, be prepared for the capital gains tax.
Short-term gains are taxed if that asset was sold within a year of its purchase and is taxed at the same rate as the owner’s regular income. Long-term gains are assets that are sold at least a year after the purchase date. They’re taxed at either 0%, 15%, or 20% depending on the person’s tax bracket.
If a filer sells a property that was their primary living place for at least two years, the first $250,000 of the sale are not taxable.
The kiddie tax exists to ensure parents don’t hide income under their children’s names. It applies to a child’s unearned income – passive income like interest on a savings account. It taxes income over $2,300 at the parent’s rate for the year. If a dependent is earning money through a job that money is taxed normally.
