What are tax brackets and how do they work?
Your tax bracket determines the percentage of your income that goes toward federal or state taxes. Knowing this information can help you make informed decisions on your tax liability and financial strategy.
What are tax brackets?
Tax brackets are the income ranges that determine the percentage at which individuals are taxed by the government. According to the IRS [PDF], the US federal tax system is “progressive,” meaning that higher income is subject to higher tax rates. Each bracket has an associated tax rate, and as an individual’s income increases, they may move into a higher bracket, paying a greater percentage of their income in taxes.
What are tax rates?
A tax rate is the percentage at which income, sales, property, etc. are taxed by a government.
Progressive versus flat
Tax rates can be progressive, where higher incomes are taxed at higher percentages, or flat, applying a consistent rate regardless of income levels.
Marginal tax rate
The marginal tax rate is the amount of tax you pay for each dollar of income that falls within the next highest tax bracket. According to the 2024 tax brackets, if your filing status is single, your first $11,600 of taxable income is subject to 10% tax; each dollar you earn after that $11,600 but before $47,151 is subject to 12% tax; and so on. The tax rate applied to each successive dollar is its marginal tax rate.
Federal versus state taxes
Federal and state taxes represent two levels of taxation in the United States. The federal government levies income taxes on a national level, and these funds contribute to various federal programs and services. Federal tax rates are determined by tax brackets. The Internal Revenue Service (IRS) oversees the collection and enforcement of federal taxes.
State taxes are imposed by individual state governments, with rates and regulations varying across states. Some states have a progressive state income tax, while others have a flat. Nine states have no state income tax. These states are:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Federal income tax applies to everyone in the US.
States can also tax sales, property, and more.
2023 tax brackets
| Tax Rate | Single | Married filing separately | Married filing jointly | Head of household |
| 10% | $0 – $11,000 | $0 – $11,000 | $0 – $22,000 | $0 – $15,700 |
| 12% | $11,001 – $44,725 | $11,001 – $44,725 | $22,001 – $89,450 | $15,701 – $59,850 |
| 22% | $44,726 – $95,375 | $44,726 – $95,375 | $89,451 – $190,750 | $59,851 – $95,350 |
| 24% | $95,376 – $182,100 | $95,376 – $182,100 | $190,751 – $364,200 | $95,351 – $182,100 |
| 32% | $182,101 – $231,250 | $182,101 – $231,250 | $364,201 – $462,500 | $182,101 – $231,250 |
| 35% | $231,251 – $578,125 | $231,251 – $346,875 | $462,501 – $693,750 | $231,251 – $578,100 |
| 37% | $578,126 or more. | $346,876 or more. | $693,751 or more. | $578,101 or more. |
2024 tax brackets
| Tax Rate | Single | Married filing separately | Married filing jointly | Head of household |
| 10% | $0 – $11,600 | $0 – $11,600 | $0 – $23,200 | $0 – $16,550 |
| 12% | $11,601 – $47,150 | $11,601 – $47,150 | $23,201 – $94,300 | $16,551 – $63,100 |
| 22% | $47,151 – $100,525 | $47,151 – $100,525 | $94,301 – $201,050 | $63,101 – $100,500 |
| 24% | $100,526 – $191,950 | $100,526 – $191,950 | $201,051 – $383,900 | $100,501 – $191,950 |
| 32% | $191,951 – $243,725 | $191,951 – $243,725 | $383,901 – $487,450 | $191,951 – $243,700 |
| 35% | $243,726 – $609,350 | $243,726 – $365,600 | $487,451 – $731,200 | $243,701 – $609,350 |
| 37% | $609,351 or more | $365,601 or more | $731,201 or more | $609,350 or more |
Calculating and finding your tax bracket
To find your tax bracket:
- Examining the tax brackets above or on the IRS website.
- Locate your taxable income, which includes wages, investments, and other sources of earnings.
- Identify the corresponding tax bracket for your income range to understand the applicable tax rate. Online tax calculators and professional tax software can simplify this process, providing a quick and accurate assessment of your tax situation.
You can also review your tax return from last year. The IRS typically provides a summary of your tax rate and the corresponding income range on the tax form. If your financial situation has changed, such as a salary increase or additional income sources, consider consulting with a tax professional.
How tax brackets work—an example
For example, let’s say you are a single filer in the year 2024 and your taxable income is $100,000. This means your marginal tax rate is 24%.
Due to the progressive tax system, some of your income will be taxed in lower-than-24% tax brackets such as 10%, 12%, and 22%.
As your income moves up through these tax brackets, portions of it are taxed at the increasing rates like so:
| 10% | The first $11,600 is taxed at 10%: $1,160 |
| 12% | The next $35,550 ($47,150 minus $11,600) is taxed at 12%: $4,266 |
| 22% | The following $53,375 ($100,525 minus $47,150) is taxed at 22%: $11,742 |
| 24% | The last $8,925 ($100,000 minus $91,075) is taxed at 24%: $2,142 |
The total tax amount for your $100,000 income is the sum of $1,160 + $4,266 + $11,742 + $2,142 = $19,310
Calculate yours below:
Single filer
| If the taxable income is… | The tax due is… |
| Equal or under $11,600 | 10% of taxable income |
| Over $11,600 but equal or under $47,150 | $1,160 plus 12% of the over $11,600 |
| Over $47,150 but equal or under $100,525 | $5,426 plus 22% of the over $47,150 |
| Over $100,525 but equal or under $191,950 | $17,168.50 plus 24% of the over $100,525 |
| Over $191,950 but equal or under $243,725 | $39,110.50 plus 32% of the over $191,150 |
| Over $243,725 but equal or under $$609,350 | $55,678.50 plus 35% of the over $243,725 |
| Over $609,350 | $183,647.25 plus 37% of the over $609,350 |
Married filing separately
| If the taxable income is… | The tax due is… |
| Equal or under $11,600 | 10% of the taxable income |
| Over $11,600 but equal or under $47,150 | $1,160 plus 12% of the over $11,600 |
| Over $47,150 but equal or under $100,525 | $5,426 plus 22% of the over $47,150 |
| Over $100,525 but equal or under $191,950 | $17,168.50 plus 24% of the over $100,525 |
| Over $191,950 but equal or under $243,725 | $39,110.50 plus 32% of the over $191,150 |
| Over $243,725 but equal or under $365,600 | $55,678.50 plus 35% of the over $243,725 |
| Over $365,600 | $98,334.75 plus 37% of the over $365,600 |
Married filing jointly
| If the taxable income is… | The tax due is… |
| Equal or under $23,200 | 10% of the taxable income |
| Over $23,200 but equal or under $94,300 | $2,320 plus 12% of the over $23,200 |
| Over $94,300 but equal or under $201,050 | $10,852 plus 22% of the over $94,300 |
| Over $201,050 but equal or under $383,900 | $34,337 plus 24% of the over $201,050 |
| Over $383,900 but equal or under $487,450 | $78,221 plus 32% of the over $383,900 |
| Over $487,450 but equal or under $731,200 | $111,357 plus 35% of the over $487,450 |
| Over $731,200 | $196,669.50 plus 37% of the over $731,200 |
Head of household
| If the taxable income is… | The tax due is… |
| Equal or under $16,550 | 10% of the taxable income |
| Over $16,550 but equal or under $63,100 | $1,655 plus 12% of the over $16,550 |
| Over $63,100 but equal or under $100,500 | $7,241 plus 22% of the over $63,100 |
| Over $100,500 but equal or under $191,950 | $15,469 plus 24% of the over $100,500 |
| Over $191,950 but equal or under $243,700 | $37,417 plus 32% of the over $191,150 |
| Over $243,700 but equal or under $609,350 | $53,977 plus 35% of the over $243,700 |
| Over $609,350 | $181,954.50 plus 37% of the over $609,350 |
Lowering your tax bracket
There are ways you can work to lower your income so that you fall into a lower tax bracket.
Tax deductions
Tax deductions such as property taxes, mortgage interest, or charitable contributions can reduce your taxable income.
Tax credits
Tax credits are dollar-for-dollar reductions in the actual amount of income tax owed. Popular tax credits are the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and the American Opportunity Credit for education expenses (AOTC).
This article is for educational purposes only and should not be taken as tax advice. Speak to a licensed tax professional for tax advice.
Disclosures:
All examples above are hypothetical, do not reflect any specific investments, are for informational purposes only, and should not be considered an offer to buy or sell any products. M1 does not provide any financial advice.
All investing involves risk, including the risk of losing the money you invest. Brokerage products and services are offered by M1 Finance LLC, Member FINRA / SIPC, and a wholly owned subsidiary of M1 Holdings, Inc.
20240210-3345673-10612643