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Why do we have tax brackets?

Tax brackets are an integral part of 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 adjusted gross income, not the earnings on your W-2.

In other words, what you pay is based on your taxable income — wages and other income, such as interest — minus certain deductions and other adjustments. Then, what's left is divided into chunks that are taxed at different rates to determine your ultimate tax bill.

The highest rate, paid on the top bracket of your income, is called your marginal tax rate. That's not to be confused with your effective tax rate, which is the average percentage of your income that you pay in taxes.

Does it sound complex and confusing? That's because it is — which is why there have long been calls for a much simpler income tax system, maybe one with a single flat tax rate that everybody would pay.

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2023 federal income tax brackets (for 2024)

The IRS has announced that these will be the brackets for taxes due in 2024, on income earned in 2023.

For individual taxpayers

Portion of income Tax rate
Up to $11,000 10%
$11,001 to $44,725 12%
$44,726 to $95,375 22%
$95,376 to $182,100 24%
$182,101 to $231,250 32%
$231,251 to $578,125 35%
$578,125 and higher 37%

For couples filing jointly

Portion of income Tax rate
Up to $22,000 10%
$22,001 to $89,450 12%
$89,451 to $190,750 22%
$190,751 to $364,200 24%
$364,201 to $462,500 32%
$462,501 to $693,750 35%
$693,750 and higher 37%

2022 federal income tax brackets (for 2023)

These are the brackets for taxes due in 2023, on income earned in 2022. The tax rates haven't changed since the 2017 tax law signed by President Donald Trump.

For individual taxpayers

Portion of income Tax rate
Up to $10,275 10%
$10,276 to $41,775 12%
$41,776 to $89,075 22%
$89,076 to $170,050 24%
$340,101 to $431,900 32%
$215,951 to $539,900 35%
$647,851 and higher 37%

For couples filing jointly

Portion of income Tax rate
Up to $20,550 10%
$20,551 to $83,550 12%
$83,551 to $178,150 22%
$178,151 to $340,100 24%
$340,101 to $431,900 32%
$431,901 to $647,850 35%
$647,851 and higher 37%

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How tax brackets work

Here's how the tax brackets will work this year.

  • If you file your 2023 tax return as a single and had a low adjusted gross income of under $11,00 last year, your tax rate is 10%.
  • If you file as a single and had adjusted gross income of $85,000 in 2023, you pay: a 10% tax on the first $11,000; a 12% tax on the next amount, up to $44,725; and a 22% tax on the final portion, up to $95,375.
  • If you and your spouse file your 2023 taxes jointly and had adjusted gross income of $500,000 last year, you pay: a 10% tax on the first $22,000; a 12% tax on the next slice, up to $89,450; a 22% on the portion going up to $190,750; a 24% tax on the next section, up to $364,200; a 32% tax on the portion after that, going up to $462,500; and a 35% tax on the final chunk, up to $500,000.

As you earn more money, you'll want to take steps to reduce your taxable income and drop down into a lower top tax bracket. Directing some of your earnings into an individual retirement account (IRA) or 401(k) retirement savings can help accomplish that.

You may decide you need to speak with an accountant or a tax professional in order to score well in this non-basketball version of bracketology.

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Doug Whiteman Former Editor-in-Chief

Doug Whiteman was formerly the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and CNBC.com and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."

Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.