Tax Planning What is a Tax Bracket? Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by Jim Wang Published Feb 12, 2024 3 min read 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. 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%. 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 RatesThreshold for SingleThreshold for MJF10%$0 – $11,000$0 – $22,00012%$11,001 – $44,725$22,001 – $89,45022%$44,726 – $95,375$89,451 – $190,75024%$95,376 – $182,100$190,751 – $364,20032%$182,101 – $231,250$364,201 – $462,50035%$231,251 – $578,125$462,501 – $693,75037%$578,126 and over$693,751 and over 2024 Rates RatesThreshold for SingleThreshold for MJF10%$0 to $11,600$0 to $23,20012%$11,601 to $47,150$23,201 to $94,30022%$47,151 to $100,525$94,301 to $201,05024%$100,526 to $191,950$201,051 to $383,90032%$191,951 to $243,725$383,901 to $487,45035%$243,726 to $609,350$487,451 to $731,20037%$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. Get started now Previous Post Where’s My Tax Refund? How to Check Your Refund Status Next Post All The Single Ladies…Put Your Tax Deductions Up! Written by Jim Wang More from Jim Wang 8 responses to “What is a Tax Bracket?” Thank you for the information. I appreciate you. Reply Thank you for explaining it so clearly. Reply This is great information. I have used Turbo Tax for as far back as I can remember and it does all the work (thinking) for me so thank you for letting me know about these brackets. I never knew the breakdown before. Reply Good Job. It’s always helpful to have that situation explained. Reply is there a bracket for filing head of household Reply That would fall under the “Sinlge FiIers” Reply Thanks I really understood but the way you worded and broke everything down .I feel more informed anyway . Reply Are the tax tables above for adjusted gross income or taxable income? Reply Leave a ReplyCancel reply Browse Related Articles Taxes 101 What Are Tax Brackets? Taxes 101 Taxes 101:Tax Brackets Tax Tips How is America's Income Tax Burden Weighted? Taxes 101 Roth IRA Conversions (Converting IRA to Roth IRA) Tax Planning How Bonuses Are Taxed: A Complete Guide 401K, IRA, Stocks Tax-Wise Retirement Planning Tax Deductions and Credits Tax Deduction vs. Tax Credit Family Love and Taxes: Tax Benefits of Marriage Income and Investments Taxes on Stocks 101: What You Need to Know About Sellin… Life Lottery Calculator
This is great information. I have used Turbo Tax for as far back as I can remember and it does all the work (thinking) for me so thank you for letting me know about these brackets. I never knew the breakdown before. Reply
Thanks I really understood but the way you worded and broke everything down .I feel more informed anyway . Reply