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Taxes can be pretty confusing, especially since the rules are always changing -- including the tax brackets.
Tax brackets put your income into buckets that are taxed at different rates. The brackets tend to be updated every year to keep up with inflation, and the Trump tax law has shaken them up even more.
Here's what you need to know about tax brackets for 2018 and beyond.
Why do we have tax brackets?
Tax brackets are an integral part of what's referred to as America's progressive tax system. As you earn more money, your income hits thresholds. At each threshold, the income above the line is taxed at a progressively higher rate.
When looking at the brackets, it's essential to remember that the income triggering each tax rate is your adjustable gross income, not necessarily the figure on your W-2.
Your ultimate tax bill is based on your wages plus other income (such as from investing), minus deductions and credits.
The complexity has long resulted in calls for a simpler income tax system, such as a flat tax rate.
What are the current tax brackets?
These are the brackets for the taxes you pay in 2018, on income earned in 2017.
|Up to $9,525||10%|
|$9,526 to $38,700||12%|
|$38,701 to $82,500||22%|
|$82,501 to $157,500||24%|
|$157,501 to $200,000||32%|
|$200,001 to $500,000||35%|
|Up to $19,050||10%|
|$19,051 to $77,400||12%|
|$77,401 to $165,000||22%|
|$165,001 to $315,000||24%|
|$315,001 to $400,000||32%|
|$400,001 to $600,000||35%|
What does that all mean?
Here's how the tax brackets work: If you file as a single and make $9,000, your tax rate is 10%. If you earn $30,000, your first $9,525 is taxed at 10%, while the remaining $20,475 carries a 12% tax. And so on.
As you make more money, you'll want to take steps to reduce your taxable income and drop down into a lower tax bracket. Directing some of your earnings into an individual retirement account (IRA) might do this.
You may need to speak with an accountant or tax professional, such as at the nearest H&R Block office.
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