As a 501(c)(3) nonprofit, we depend on the generosity of individuals like you. Help us continue our work by making a tax-deductible gift today.
The Tax Foundation is the nation’s leading independent tax policy nonprofit. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and global levels. For over 80 years, our goal has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity.
Pop quiz: do you know what tax bracket you’re in? If you answered, “it depends,” you’re right, because parts of your income are probably taxed at different rates.
Say you have $50,000 in taxable income. Today, that dollar amount lands within the 22 percent bracket. But that doesn’t mean you pay that rate on the full $50,000.
In the U.S., your federal income tax is calculated through a progressive graduated rate system. Basically, if you make more, you’re taxed more.
Right now, we have seven tax brackets. Each bracket covers a range of taxable income, and the rate for each bracket gets progressively higher.
Any income within the range of the first bracket is taxed at that rate. The next dollar you earn over the first bracket falls into the second bracket, and only those additional dollars within that range are taxed at the new rate.
This continues as your taxable income increases.
So, in our $50,000 example, this much gets taxed at 10 percent, only this much gets taxed at 12% percent, and only this much gets taxed at 22 percent.
As you can see, whatever your top tax rate is, it doesn’t apply to all of your taxable income – just the portion that falls into your highest bracket.
When we understand how brackets work, we can better understand the tax impact of picking up a second job, putting in overtime, or any other ways we might increase our income.
Subscribe or follow us to learn about new videos, primers, podcast episodes, and more.
TaxEDU was made possible thanks to the generous support of the Stiles-Nicholson Foundation.