How Many Taxpayers Fall Into Each Income Tax Bracket?

October 15, 2015

Scott Greenberg

Scott Greenberg

Most taxpayers are aware that the federal income tax is designed to tax individuals with higher incomes at higher rates. Specifically, the income tax is structured around seven tax brackets, which impose rates from 10% to 39.6% on each additional dollar that individuals earn.

Earlier today, we released estimates for how the seven tax brackets will be adjusted for inflation for the 2016 tax year:

Table 1. 2016 Taxable Income Brackets and Rates (Estimate)

Rate

Single Filers

Married Joint Filers

Head of Household Filers

10%

$0 to $9,275

$0 to $18,550

$0 to $13,250

15%

$9,275 to $37,650

$18,550 to $75,300

$13,250 to $50,400

25%

$37,650 to $91,150

$75,300 to $151,900

$50,400 to $130,150

28%

$91,150 to $190,150

$151,900 to $231,450

$130,150 to $210,800

33%

$190,150 to $413,350

$231,450 to $413,350

$210,800 to $413,350

35%

$413,350 to $415,050

$413,350 to $466,950

$413,350 to $441,000

39.6%

$415,050+

$466,950+

$441,000+

But how many Americans fall into each of these brackets, anyway? As it happens, the IRS publishes statistics about this very question, which are displayed in the following graph (all data from 2013):

As shown in the graph above, over 42 million American households fall into the 15% bracket, making it the most common tax bracket. Households in this bracket pay 15 cents of each additional dollar of salary they earn in income taxes; however, their overall income tax rate is usually much lower. On average, households in the 15% bracket pay 6.5% of their income in income taxes, due to the standard deduction, personal exemptions, and various tax credits.

Next most common is for a household not to fall into any income tax bracket at all. This occurs when a household’s income is less than the value of the deductions and personal exemptions it is able to claim. Over 36 million households do not fall into any tax bracket. However, this figure does not represent all of the American households who pay no income taxes, as even households that fall into an income tax bracket are sometimes able to reduce their tax liability to zero with tax credits.

27 million American households fall into the 10% tax bracket, and 24 million fall into the 25% tax bracket. All in all, the majority of American households (77%) fall into the 15% tax bracket or below.

Only 892,420 households fall into the top income tax bracket. These households face a rate of 39.6% on their ordinary income, although they face lower rates on income from long-term capital gains and dividends. Overall, these households face an average effective tax rate of 28.5%, higher than households in any other bracket.

You can figure out which income bracket your household will fall into in 2016 by taking your expected adjusted gross income (line 37 on Form 1040), subtracting your deductions and personal exemptions (lines 40 and 42), and looking at the table above to see what bracket the figure falls into.

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

Inflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power.

A tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat.

The standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act as an incentive for taxpayers not to itemize deductions when filing their federal income taxes.

A tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly.

Taxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income.