Here’s How Tax Brackets Work

Here’s How Tax Brackets Work

As anyone who has ever filed income taxes can tell you, you have to know which tax bracket you’re in before you can make even an educated guess of what you might owe Uncle Sam.

It’s pretty easy to figure out your tax bracket because it’s based on your income, but it’s trickier to calculate how much you’ll actually owe because of the way the U.S. tax system works. We’ll explain how to do that in a moment. But first, here are the tax brackets for 2018, represented as the percentage of tax you’d pay on each portion of your income (more on that later).

2018 Tax Brackets

If you’re single (known as an individual filer), your brackets are:
10%: Up to $9,525
12%: $9,526 to $38,700
22%: $38,701 to $82,500
24%: $82,501 to $157,500
32%: $157,501 to $200,000
35%: $200,001 to $500,000
37%: Over $500,000

People who are married, but file separately (known as married filing separately), have the same tax brackets as individual filers until the top two. Those amounts are:

35%: $200,001 to $300,000
37%: Over $300,000

If you’re married and file a single tax return as a couple (known as married filing jointly), your brackets are:
10%: Up to $19,050
12%: $19,051 to $77,400
22%: $77,401 to $165,000
24%: $165,001 to $315,000
32%: $315,001 to $400,000
35%: $400,001 to $600,000
37%: Over $600,000

If you’re unmarried, pay for more than half your household’s expenses and have a dependent (known as head of household), your brackets are:
10%: Up to $13,600
12%: $13,601 to $51,800
22%: $51,801 to $82,500
24%: $82,501 to $157,500
32%: $157,501 to $200,000
35%: $200,001 to $500,000
37%: Over $500,000

Your Marginal Tax Bracket vs. Your Effective Tax Rate

So what you owe in taxes is the income on your W-2 form multiplied by your tax bracket percentage, right? Not so fast.

For starters, the income on your W-2 isn’t likely to be the amount that you’re actually taxed on. That’s because when you file, you’re probably going to take deductions that will lower your taxable income, whether that’s the standard deduction or a host of other deductions you choose to itemize on your tax return. Your 1040 form helps you determine what your taxable income will be.

Second, the U.S. income tax system is a progressive tax, not a flat tax. That means as your income rises, so does the percentage that you pay in taxes — and your income is actually taxed in chunks at graduated rates that follow the steps of the tax brackets.

Here’s a simple example of what we mean. Let’s say you’re single and after deductions, your taxable income is $50,000, which lands you in the 22% tax bracket. You won’t be paying 22% on all $50,000. Rather …

• The first $9,525 will be taxed at 10%, which equals $952.50
• The dollars between $9,526 and $38,700 (or $29,174) will be taxed at 12%, or about $3,501
• The dollars between $38,701 and $50,000 (or $11,299) will be taxed at 22%, or about $2,486.

So in this example, your total tax owed would be $6,939.50.

Your marginal tax bracket is the tax rate you paid on your last dollar of income and is how you determine which tax bracket you’re in. Your effective tax rate, meanwhile, is the percentage of your income that you paid in taxes after all was said and done — in this case, about 14% ($6,939.50/$50,000).

Changing Tax Brackets

Of course, your tax bracket and effective tax rate aren’t something that you figure out once and then never again. For instance, when you get a raise, it could push you into the next higher tax bracket. On the flip side, if your income drops or you become eligible to take more deductions, you could fall into a lower tax bracket. Also, keep in mind your bracket could change because the IRS can change the income ranges that apply to each bracket, or because the government can enact new legislation. So make sure you check each year to see what the new tax brackets are, and how that could impact the amount you will pay.

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