Understanding the ins and outs of tax rates
Those with greater salaries in the United States are subject to higher federal income tax rates due to the country's progressive tax structure.
Do not assume that you will be subject to the tax rate associated with your tax bracket simply because you are "in" that bracket. Higher-income earners are subject to higher federal income tax rates, whereas those with lower earnings are subject to lower rates. A "progressive" tax structure works in this way.
In order to determine how much tax you owe, the government uses a system of income thresholds and brackets. You won't have to pay the full tax rate that applies to your income bracket.
2022 Tax Rates and Federal Income Tax Brackets (for the tax filing in 2023)
The federal income tax rates for 2022 are as follows: 10%, 12%, 22%, 24%, 35%, and 37%. How much tax you owe and how you to file determine your tax bracket.
Single filers. Tax rate Taxable income bracket Taxes owed
10% $0 to $10,275 10% of taxable income.
12% $10,276 to $41,775 $1,027.50 plus 12% of the amount over $10,275
22% $41,776 to $89,075 $4,807.50 plus 22% of the amount over $41,775
24% $89,076 to $170,050 $15,213.50 plus 24% of the amount over $89,075
32% $170,051 to $215,950 $34,647.50 plus 32% of the amount over $170,050
35% $215,951 to $539,900. $49,335.50 plus 35% of the amount over $215,950.
37% $539,901 or more $162,718 plus 37% of the amount over $539,900.
Married, filing jointly Tax rate Taxable income bracket Taxes owed
10% $0 to $20,550 10% of taxable income.
12% $20,551 to $83,550 $2,055 plus 12% of the amount over $20,550
22% $83,551 to $178,150 $9,615 plus 22% of the amount over $83,550
24% $178,151 to $340,100 $30,427 plus 24% of the amount over $178,150
32% $340,101 to $431,900 $69,295 plus 32% of the amount over $340,100
35% $431,901 to $647,850 $98,671 plus 35% of the amount over $431,900
37% $647,851 or more $174,253.50 plus 37% of the amount over $647,850
Married, filing separately Tax rate Taxable income bracket Taxes owed
10% $0 to $10,275 10% of taxable income
12% $10,276 to $41,775 $1,027.50 plus 12% of the amount over $10,275
22% $41,776 to $89,075 $4,807.50 plus 22% of the amount over $41,775
24% $89,076 to $170,050 $15,213.50 plus 24% of the amount over $89,075
32% $170,051 to $215,950 $69,295 plus 32% of the amount over $340,100
35% $215,951 to $323,925 $49,335.50 plus 35% of the amount over $215,950
37% $323,926 or more $87,126.75 plus 37% of the amount over $323,925
Head of Household Tax rate Taxable income bracket Taxes owed
10% $0 to $14,650 10% of taxable income.
12% $14,651 to $55,900 $1,465 plus 12% of the amount over $14,650
22% $55,901 to $89,050 $6,415 plus 22% of the amount over $55,900
24% $89,051 to $170,050 $13,708 plus 24% of the amount over $89,050
32% $170,051 to $215,950 $33,148 plus 32% of the amount over $170,050
35% $215,951 to $539,900 $47,836 plus 35% of the amount over $215,950
37% $539,901 or more $161,218.50 plus 37% of the amount over $539,900
Federal Tax Brackets and Tax Rates for 2023 (for the tax filing in 2024)
Single filers. Tax rate Taxable income bracket Taxes owed
10% $0 to $11,000 10% of taxable income.
12% $11,001 to $44,725 $1,100 plus 12% of the amount over $11,000
22% $44,726 to $95,375 $5,147 plus 22% of the amount over $44,725
24% $95,376 to $182,100 $16,290 plus 24% of the amount over $95,375
32% $182,101 to $231,250 $37,104 plus 32% of the amount over $182,100
35% $231,251 to $578,125 $52,832 plus 35% of the amount over $231,250
37% $578,126 or more $174,238.25 plus 37% of the amount over $578,125
Married, filing jointly Tax rate Taxable income bracket Taxes owed
10% $0 to $22,000 10% of taxable income.
12% $22,001 to $89,450 $2,200 plus 12% of the amount over $22,000
22% $89,451 to $190,750 $10,294 plus 22% of the amount over $89,450
24% $190,751 to $364,200 $32,580 plus 24% of the amount over $190,750
32% $364,201 to $462,500 $74,208 plus 32% of the amount over $364,200
35% $462,501 to $693,750 $105,664 plus 35% of the amount over $462,500
37% $693,751 or more $186,601.50 + 37% of the amount over $693,750
Married, filing separately Tax rate Taxable income bracket Taxes owed
10% $0 to $11,000 10% of taxable income
12% $11,001 to $44,725 $1,100 plus 12% of the amount over $11,000
22% $44,726 to $95,375 $5,147 plus 22% of the amount over $44,725
24% $95,376 to $182,100 $16,290 plus 24% of the amount over $95,375
32% $182,101 to $231,250 $37,104 plus 32% of the amount over $182,100
35% $231,251 to $346,875 $52,832 plus 35% of the amount over $231,250
37% $346,876 or more $93,300.75 plus 37% of the amount over $346,875
Head of Household Tax rate Taxable income bracket Taxes owed
10% $0 to $15,700 10% of taxable income.
12% $15,701 to $59,850 $1,570 plus 12% of the amount over $15,700
22% $59,851 to $95,350 $6,868 plus 22% of the amount over $59,850
24% $95,351 to $182,100 $14,678 plus 24% of the amount over $95,350
32% $182,101 to $231,250 $35,498 plus 32% of the amount over $182,100
35% $231,251 to $578,100 $51,226 plus 35% of the amount over $231,250
37% $578,101 or more $172,623.50 plus 37% of the amount over $578,100
Which tax bracket do you actually fall into?
What percentage of your income really goes to the government in the form of taxes is known as your effective tax rate. Effective tax rate is calculated by dividing the total tax due (line 16 of Form 1040) by the entire amount of taxable income (line 15).
The thresholds at which certain tax rates begin and end are adjusted annually. Several aspects of the tax system, such as the thresholds for federal tax rates, are adjusted annually to account for inflation. The purpose of this indexing is to prevent "bracket creep," which occurs when taxpayers move into a higher tax band due to inflation.
Using $50,000 as an example, you would pay 10% on the first $10,275 and 12% on the remaining $39,050. As portion of your income (about $22,000) is subject to tax at a rate of 22 percent, the remaining $50,000 of your taxable income would be subject to tax at that rate as well. A total of $6,600 would be due, which is nearly 13% of your taxable income while being in the 22% tax rate. A more accurate representation of your tax burden would be 13%.
Assume you are a single taxpayer with $32,000 in taxable income. This will put you in the 12% tax bracket in 2022. Do you pay 12% on the entire $32,000? No. In reality, you only have to pay 10% on the first $10,275 and 12% on the remainder. (The tax brackets up top provide a breakdown.)
This is unique to the federal income tax system. There is no universally accepted model for how states should tax income, and states are free to choose a variety of approaches.
How do marginal tax rates work?
The "marginal tax rate" is the tax rate you pay on your final dollar of taxable income. This corresponds, for the most part, to your highest tax bracket.
For instance, you would fall into the 12% tax bracket if you are single and had a taxable income of $35,000. You would additionally be required to pay 12% of any increase in your taxable income of $1.
Yet, the majority of your $46,000 taxable income would still be subject to the 12% tax rate while the final few hundred dollars would be subject to the 22% rate. Your maximum tax rate would then be 22%.
How to reduce your federal income taxes by moving down a tax bracket
Tax deductions and tax credits are two popular strategies to lower your tax liability.
Tax credits can reduce your tax liability dollar for dollar, but they have no impact on your current tax rate.
Tax deductions, on the other hand, reduce the amount of your income that is taxed. Deductions often lower your taxable income by a percentage equal to the highest federal income tax bracket that you fall under. Hence, a $1,000 deduction might save you $220 if your tax bracket is 22%.
Or to put it another way, maximize your tax deductions. Your taxable income might be reduced, which would move you into a lower tax band and result in a smaller tax burden.
I'm here to help
To get specific answers to your doubts, questions, or inquiries get in contact with me. I will happily provide you with all the information and guidance you need to make an informed and conscious decision when filing your US tax return, claiming tax deductions, tax credits and foreign earned income exclusions. Book a consultation at the most convenient date and time for you and I will be looking forward to helping you.
