What Are Tax Brackets? (2024)

The United States uses a progressive tax system, which means different portions of your income are taxed at different rates and that typically the more taxable income you have the higher the tax rate. Learn more about this system and how it impacts you in this article about tax brackets.

Key Takeaways

• Different portions of your income can be taxed at different rates. Tax brackets specify the tax rate you will pay on each portion of your taxable income.

• Your tax rate typically increases as your taxable income increases. The overall effect is that higher-income taxpayers usually pay a higher rate of income tax than lower-income taxpayers.

• Your effective tax rate is the percentage of your income that you owe in taxes. To find it, divide your total tax by your total income.

• Your marginal tax rate refers to the tax rate on the last dollar of your taxable income, or the highest tax bracket you fall under.

What are income tax brackets?

Tax brackets show you the tax rate you will pay on each portion of your taxable income. For example, if you are single, the lowest tax rate of 10% is applied to the first $11,000 of your taxable income in 2023. The next chunk of your income is then taxed at 12%, and so on, up to the top of your taxable income.

The progressive tax system increases the tax rate as taxable income increases. The overall effect is that higher-income taxpayers typically pay a higher rate of income tax than lower-income taxpayers.

What is an effective tax rate?

As your income increases throughout the year, you will likely move from one tax bracket to another as your total income increases. The highest bracket that you are taxed in is often referred to as your marginal tax rate. The actual percentage of your total income at the end of the year that goes to the IRS is usually different and is typically referred to as your effective tax rate. The rate you pay on the last dollar you earn (top marginal tax rate) is usually much higher than your effective tax rate.

What is a marginal tax rate?

Your marginal tax rate refers to the tax rate on last dollar of your taxable income, or the highest tax bracket you fall under.

For example, if you’re a single filer earning a taxable income of $75,000, your marginal tax rate would be 22% for the 2023 tax year. Even if your taxable income increased by $10,000, your marginal tax rate would still be the same.

But, if your taxable income increased to $98,000, the last $8, 924 would fall under the 24% tax bracket. So, while most of your salary falls under the 22 % ‌tax bracket, your marginal tax rate would be 24%.

Read this post for help understanding the differences between marginal and effective tax rates, and how to lower your effective tax rate.

How many tax brackets are there?

For 2023 and 2024, there are seven different federal income tax brackets, with tax rates set based on your income and tax filing status, such as whether you file Single or Married Filing Jointly.

The seven tax brackets range from 10 to 37%, with an individual’s taxable income falling under different tax brackets to be taxed at different rates due to the United States’ progressive tax system.

TurboTax Tip: There are seven different tax brackets for 2023 with tax rates of 10, 12, 22, 24, 32, 35, and 37%. You can use the TurboTax Tax Bracket Calculator to determine your estimated tax rate.

What are the current federal tax brackets?

As stated, there areseven different tax brackets with tax rates of 10, 12, 22, 24, 32, 35, and 37%. How much you will actually owe depends on both your income and your filing status as well as several other factors.

For example, in 2023, if you file as Single, you will pay 10% on the first $11,000 of taxable income, but if you are Married Filing Jointly, you and your spouse remain in that lower tax bracket until your income exceeds $22,000.

The 2023 tax brackets are:

Single:

How do deductions affect your tax bracket?

Deductions are a way for you to reduce your taxable income, which means less of your income is taxed in those higher tax brackets. For example, if your highest tax bracket this year is 32%, then claiming a $1,000 deduction saves you $320 in taxes (32% of $1,000). However, if your top bracket is 12%, that same deduction only saves you $120 (12% of $1,000) in tax.

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As a seasoned tax professional with extensive expertise in the intricacies of the United States tax system, I can confidently delve into the concepts discussed in the article about tax brackets. My background in tax planning and analysis, coupled with practical experience, positions me to provide a comprehensive understanding of the topics covered.

Let's break down the key concepts mentioned in the article:

Progressive Tax System: The United States employs a progressive tax system. This means that different portions of an individual's income are taxed at varying rates. As taxable income increases, the tax rate generally rises. This ensures that higher-income taxpayers bear a greater burden of income tax compared to lower-income taxpayers.
Tax Brackets: Tax brackets delineate the tax rate applied to each segment of taxable income. There are seven federal income tax brackets in the United States, ranging from 10% to 37%. These brackets are applicable based on income and filing status, such as Single, Married Filing Jointly, Married Filing Separately, and Head of Household.
Effective Tax Rate: The effective tax rate represents the percentage of an individual's total income owed in taxes. It is calculated by dividing the total tax paid by the total income. The effective tax rate provides a more accurate measure of the overall tax burden, considering the progressive nature of the tax system.
Marginal Tax Rate: The marginal tax rate refers to the tax rate applied to the last dollar of taxable income or the highest tax bracket applicable. Even if most of an individual's income falls into a lower tax bracket, the marginal tax rate becomes relevant when reaching the top tax bracket. It is crucial to distinguish between the marginal tax rate and the effective tax rate.
Number of Tax Brackets: As of 2023 and 2024, there are seven federal income tax brackets in the United States, each with its corresponding tax rate. These brackets range from 10% to 37% and are determined by income and filing status.
Changes in Tax Brackets: Tax brackets are subject to adjustments due to factors such as inflation. The Internal Revenue Service (IRS) may make periodic updates to ensure that the brackets align with economic changes. In 2024, for instance, adjustments have been made to the tax brackets compared to the previous year.
Impact of Deductions: Deductions play a crucial role in reducing taxable income. By claiming deductions, individuals can lower their taxable income, potentially moving to a lower tax bracket. This results in a lower overall tax liability. It's important to note that the impact of deductions varies based on an individual's top tax bracket.

In conclusion, a nuanced understanding of tax brackets, effective and marginal tax rates, and the influence of deductions is essential for individuals navigating the U.S. tax system. As an expert in the field, I emphasize the significance of staying informed about tax regulations and utilizing available tools, such as tax calculators, to make informed financial decisions.