What is a Tax Bracket?

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 $10,275 in earnings will be taxed 10%. From $10,276 to $41,775 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 $20,550 will be taxed 10%. Any amount over $20,550 to $83,550 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 are below in the charts:

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.

Don’t worry about knowing these tax rules. Meet with a TurboTax Full Service expert who can prepare, sign and file your taxes, so you can be 100% confident your taxes are done right. Start TurboTax Live Full Service today, in English or Spanish, and get your taxes done and off your mind.

4 responses to “What is a Tax Bracket?”

1. 

   is there a bracket for filing head of household

   Reply
   • 

     That would fall under the “Sinlge FiIers”

     Reply
2. 

   Thanks I really understood but the way you worded and broke everything down .I feel more informed anyway .

   Reply
3. 

   Are the tax tables above for adjusted gross income or taxable income?

   Reply