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What is a Tax Bracket?

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Did you know not everyone or every dollar earned is taxed the exact same amount?

This is because the United States tax system aims to be progressive. A progressive tax system tries to collect more tax from those who earn more. In essence, a million dollar earner pays more total tax, as well as a higher percentage of their income in tax, than someone who earns far less.

What is a Tax Bracket?

One of the ways our tax system achieves this is through tax brackets. A tax bracket is simply a range of incomes that are taxed at a set rate based on your taxable income. 

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There are seven tax brackets of varying size, with the lowest bracket being subject to a 10% marginal tax rate and the highest being subject to 37% marginal tax rate. Your marginal tax rate will be dependent upon your taxable income within the brackets.

How Do I Know What Tax Bracket I’m In?

Let’s see how this works in real life. If you’re a single filer who earns $60,000 a year after you take all the necessary exemptions, adjustments, and deductions, the first $11,600 in earnings will be taxed 10%. From $11,601 to $47,150 you will be taxed 12%. On the rest, you’ll be taxed 22%. You are in the 22% tax bracket, though your effective tax rate will be much lower.

If you are married filing jointly, the first $23,200 will be taxed 10%. Any amount over $23,200 to $94,300 is taxed at 12%.

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Earlier, I mentioned that there were exemptions, adjustments, and deductions. The income you earned from your job is considered ordinary or gross income, but you are taxed on your adjusted gross income, which is your income minus those exemptions, adjustments, and deductions.

When you know your tax bracket, you can easily calculate how valuable different tax deductions are for you. If you are in the 22% tax bracket, a $1,000 deduction will reduce your tax liability by $220.

Not all of your income is taxed based on these brackets. If you have long-term capital gains and qualified dividends, you will be taxed at 0%, 15%, or 20% depending on your income. If you have a short-term gain, it will be taxed as ordinary income using your marginal tax rate.

So My Tax Brackets Are Different From Last Year? 

Each new tax year the income thresholds for each tax bracket are updated. The seven tax bracket percentages have not been changed since tax year 2018. 

The current tax brackets are: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

The income thresholds for these brackets kick are below in the charts:

2023 Rates

Rates Threshold for Single Threshold for MJF
10% $0 – $11,000 $0 – $22,000
12% $11,001 – $44,725 $22,001 – $89,450
22% $44,726 – $95,375 $89,451 – $190,750
24% $95,376 – $182,100 $190,751 – $364,200
32% $182,101 – $231,250 $364,201 – $462,500
35% $231,251 – $578,125 $462,501 – $693,750
37% $578,126 and over $693,751 and over

2024 Rates

Rates Threshold for Single Threshold for MJF
10% $0 to $11,600 $0 to $23,200
12% $11,601 to $47,150 $23,201 to $94,300
22% $47,151 to $100,525 $94,301 to $201,050
24% $100,526 to $191,950 $201,051 to $383,900
32% $191,951 to $243,725 $383,901 to $487,450
35% $243,726 to $609,350 $487,451 to $731,200
37% $609,351 and over $731,201 and over

Understanding how tax brackets work, as well as which bracket you are in, can help you make better informed financial decisions, but you don’t need to know how to calculate tax brackets when you use TurboTax. TurboTax will automatically figure out your tax bracket based on your information, and give you the tax deductions and credits you deserve based on your entries.

No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed.

Jim Wang
Jim Wang

4 responses to “What is a Tax Bracket?”

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