Published Jan. 10, 2024
Fact Checked
Ashley Maready
Tax brackets are ranges of income set by the government. Think of them as buckets. You're taxed a certain amount per bucket. When the bucket fills, you fill the next one, and you're taxed slightly more on it. This continues until you're out of taxable income.
The more income you make, the more buckets you fill, and the more you're taxed. The way it works out, people who make the most money pay the majority of taxes.
Tax brackets are confusing because you're not charged a flat percentage of income. But if you can understand filling buckets, you can quickly grasp how tax brackets work.
How tax brackets work
Tax brackets work by charging you a percentage of your income. However, this is not a flat percentage amount. You're charged a percentage of income per bracket. The highest tax bracket you fall under is your marginal tax rate.
Let's illustrate. Here are the 2024 federal tax brackets for single filers:
| Tax Bracket (Single Filers) | Marginal Tax Rate |
|---|---|
| $11,600 or less | 10% |
| $11,600 - $47,150 | 12% |
| $47,150 - $100,525 | 22% |
| $100,525 - $191,950 | 24% |
| $191,950 - $243,725 | 32% |
| $243,725 - $609,350 | 35% |
| $609,350 and higher | 37% |
Data source: IRS.
Tom is responsible for paying his income taxes for the 2024 tax year. After applying the standard deduction, his annual taxable income is $75,000. He falls into the 22% marginal tax rate. But he does not pay a flat 22% of his income in taxes.
Instead, he'll pay the marginal tax rate for each bracket. His effective tax rate, the percentage of taxes Tom actually owes the federal government, will be lower than 22%.
To visualize how much he'll pay in taxes, Tom pulls out three buckets. He labels them Bucket A, Bucket B, and Bucket C. Each bucket represents a tax bracket, from lowest to highest.
Tom then cracks open his piggy bank, where he keeps his annual income. (Tom is fun like that.) He begins to pour the money into Bucket A. By the time it's full, Tom has poured $11,600 into the bucket. Toms calculates that he owes 10% of Bucket A in taxes.
Tom moves on to Bucket B. He fills that bucket to the brim. By the time Tom finishes, he's poured $35,550 into the bucket. Tom calculates that he owes 12% of Bucket B in taxes.
Tom moves on to the final bucket, Bucket C. He pours money into it, but before the bucket fills, his piggy bank runs dry. Tom has poured $27,850 into the bucket. Tom calculates that he owes 22% of Bucket C in taxes.
Tom has poured out $75,000, or 100% of his annual taxable income, between the three buckets. He is ready to calculate his federal tax payout with some simple addition.
Tom adds up the marginal tax rates of each bucket. (Reminder: bucket = tax bracket.)
- 10% of Bucket A = $1,600.
- 12% of Bucket B = $4,266
- 22% of Bucket C = $6,127
Tom owes $11,993 ($1,600 + $4,266 + $6,127) in taxes. Tom scoops up the money, drags it to the nearest bank, and asks the teller to deposit it in his checking account. He'll use a tax software platform like TurboTax to calculate and send his official taxes to the government.
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Tax calculator
Want to avoid calculating tax brackets by hand? Try the Federal Tax Withholding Estimator to see how much taxes you'll owe in 2024.
What are the main tax brackets?
The federal government adjusts tax brackets annually to account for inflation. You'll typically pay a slightly different amount in taxes every year, even if your income remains the same.
Check out the updated 2024 tax brackets for single filers, married couples, and heads of households. Keep in mind that you're only taxed on your taxable income.
Deductions
Typically, you aren't taxed on 100% of your income. That's because not all your income is taxable. Before you calculate tax payments, you subtract deductions from your taxable income.
Say you earn $85,000 during tax year 2024 and have $10,000 in deductions. Your taxable income shrinks to $75,000. In short, the greater your deduction, the less taxes you'll pay.
Many tax filers opt for the standard deduction. This is automatically calculated based on your income. Some filers will find they save the most by using the standard deduction.
Some tax filers opt for itemized deductions instead. These must be calculated by manually inputting deductions, item by item. Depending on your selections, you may pay less taxes this way than if you opted for the standard deduction. But not everyone will.
Tax credits
Tax credits are like deductions, except you subtract them after calculating tax payments.
It goes like this:
- Calculate income.
- Subtract deductions to get taxable income.
- Calculate your tax payment.
- Subtract tax credits.
Say you owe $11,993 to the federal government. If you have a $2,000 tax credit, subtract the $2,000 credit from your $11,993 tax payment.
$11,993 - $2,000 = $9,993.
You pay only $9,993 in federal income taxes.
The government awards tax credits for all sorts of things. Right now, one of the biggest credits is the EV tax credit, which can be worth as much as $7,500. Tax credits make certain purchases, like electric vehicles, more affordable to the average American.
Other taxes
Federal income tax isn't all you owe during tax season. You may be charged state, local, and property taxes, or taxes related to investing. Some state and local governments use tax brackets to calculate how much taxes you owe.
Often, you'll pay all these taxes when filing taxes during tax season. Exceptions include sales tax, which you pay at checkout, and quarterly taxes paid by self-employed individuals.
Your employer might automatically withhold tax money from your wages if you're employed. If they withhold too much and overpay the government, the government may issue you a refund.
Regardless, you'll still want to submit your tax return come tax season. Without it, you could be liable for financial penalties and won't receive a refund if you're owed one.
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FAQs
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You'd pay $100 during the 2024 tax year (10% tax bracket), assuming that $1,000 is taxable income.
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You can lower your tax bracket by putting as much money as possible into tax-advantaged accounts. Money in these accounts is not taxable. Tax-advantaged accounts include IRAs, 401(k) plans, and HSAs (health savings accounts).
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The marginal tax rate is the rate of the highest tax bracket you fall into. If the highest rate you'll pay is 22%, then your marginal tax rate is 22%.
The effective tax rate is the percentage of your income you actually pay in taxes. If half your tax rate is 10% and half is 12%, your effective tax rate is 11%.
The effective tax rate is typically less than the marginal tax rate.
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Nope. You'd likely pay less than 22%.
Say you earn $75,000 of taxable income for the 2024 tax year. You would pay 10% taxes until your income hit $11,600; pay 12% until your income hit $47,150; and pay 22% on the remainder.
In total, you'd pay significantly less than 22% of your total taxable income.
Our Taxes Experts
Cole Tretheway is a full-time personal finance writer whose articles have been featured on The Ascent and The Motley Fool. He has a degree in English with a Certificate in Professional and Technical Communication from California Polytechnic University, SLO.
Fact Checked
Ashley Maready
Ashley Maready is a former history museum professional who made the leap to digital content writing and editing in 2021. She has a BA in History and Philosophy from Hood College and an MA in Applied History from Shippensburg University. Ashley loves creating content for the public and learning new things so she can teach others, whether it's information about salt mining, canal mules, or personal finance.
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