How Do Tax Brackets Work?

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When your friend says they're in the 32% tax bracket, what do they mean? Are they telling you they give the government 32% of their income in taxes?

They're not—though they may not realize it. "Tax bracket" is a term many of us hear but don't fully understand. Tax brackets are part of a tiered tax system—officially, a series of marginal tax rates—that taxes greater percentages of your income as your income increases. Though IRS marginal tax rates generally stay consistent from year to year, tax brackets often change with the cost of living. The tax bracket you fall into—along with your filing status and taxable income—helps to determine how much you owe in taxes. Here's a closer look.

How Do Tax Brackets Work?

Let's start by defining a few key terms:

  • Taxable income: The money you earned in a given year minus any deductions or exemptions you're entitled to take.
  • Filing status: Determines how you're taxed. IRS tax statuses include unmarried, head of household, married filing separately or married filing jointly.
  • Tax rates: The percentages used to calculate what you owe in taxes.
  • Tax brackets: The ranges of income to which different tax rates apply.

Your tax bill is calculated in steps. The first "bracket" of your income is taxed at the lowest rate, followed by the next bracket and so on. Say you're a single taxpayer with $50,000 in taxable income. Using 2021 tax brackets, here's how your tax bill might look:

IncomeTax RateTaxes Owed
Bracket 1 ($0 to $9,950) is taxed at 10% 10% x $9,950 $995
Bracket 2 ($9,951 to $40,525) is taxed at 12% 12% x $30,574 $3,668.88
Bracket 3 ($40,526 to $50,000) is taxed at 22% 22% x $9,474 $2,084.28
Total tax bill$6,748.16

As you can see, even if some of your income is in the 22% tax bracket, your tax bill does not equal 22% of your total taxable income. Because the first bracket is taxed at 10% and the second one at 12%, in our example your total tax bill comes in at just under 13.5% of your taxable income. When your income goes up, you'll pay taxes on the additional money at your highest marginal rate (in this example, 22%). If your income outgrows your current bracket, you'll move into the next tax bracket and pay a higher rate on those additional dollars.

Federal Tax Brackets in 2021

If you know your filing status and taxable income for 2021, you can estimate your tax bill using federal tax brackets and marginal rates listed below.

2021 Federal Tax Brackets by Taxable Income
Tax RateUnmarriedHead of HouseholdMarried Filing SeparatelyMarried Filing Jointly
10%$0 - $9,950$0 - $14,200$0 - $9,950$0 - $19,900
12%$9,951 - $40,525$14,201 - $54,200$9,951 - $40,525$19,901 - $81,050
22%$40,526 - $86,375$54,201 - $86,350$40,526 - $86,375$81,051 - $172,750
24%$86,376 - $164,925$86,351 - $164,900$86,376 - $164,925$172,751 - $329,850
32%$164,926 - $209,425$164,901 - $209,400$164,926 - $209,425$329,851 - $418,850
35%$209,426 - $523,600$209,401 - $523,600$209,426 - $314,150$418,851 - $628,300
37%$523,601 or more$523,601 or more$314,151 or more$628,301 or more

Source: IRS

Federal Tax Brackets for 2022

Federal tax brackets for 2022 will reflect what's expected to be a higher cost of living. Tax brackets will change as shown below, though tax rates—ranging from 10% to 37%—will remain the same:

2022 Federal Tax Brackets by Taxable Income
Tax RateUnmarriedHead of HouseholdMarried Filing SeparatelyMarried Filing Jointly
10%$0 - $10,275$0 - $14,650$0 - $10,275$0 - $20,550
12%$10,276 - $41,775$14,651 - $55,900$10,276 - $41,775$20,551 - $83,550
22%$41,776 - $89,075$55,901 - $89,050$41,776 - $89,075$83,551 - $178,150
24%$89,076 - $170,050$89,051 - $170,050$89,076 - $170,050$178,151 - $340,100
32%$170,051 - $215,950$170,051 - $215,950$170,051 - $215,950$340,101 - $431,900
35%$215,951 - $539,900$215,951 - $539,900$215,951 - $323,925$431,901 - $647,850
37%$539,901 or more$539,901 or more$323,926 or more$647,851 or more

Source: IRS

What to Know About Tax Brackets

Tax brackets are part of the formula used to calculate your federal income taxes. They are also used to calculate state income taxes in many—but not all—states.

Additionally, tax brackets are used as shorthand to talk about how much money a person makes. Someone in a high tax bracket, like your hypothetical friend in our opening example, is thought to be bringing in a high level of taxable income. Being in a high tax bracket does mean paying a higher top tax rate, but everyone pays the same rates as they move through the brackets.

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