How Do Tax Brackets Work?

In the United States, your taxable income is not taxed at a single fixed rate. Instead, it is divided into different tax brackets, each with its own tax rate. The amount of tax you pay depends on how much of your income falls into each bracket. These tax brackets and rates can change every year.

See all tax rates by year | Calculate your personal tax rate

How Tax Brackets Work?

Here’s a step-by-step explanation using an example. Let’s say you are filing as single and have a total income of $70,000:

Step 1: Calculate Taxable Income

Start by subtracting the standard deduction from your total income. For the 2023, the standard deduction is $14,600. So, $70,000 (total income) - $14,600 (standard deduction) = $55,400 of taxable income.

Step 2: Apply the Tax Rates to Each Bracket

• The first $11,600 of your taxable income is taxed at 10%.
• The next portion of $35,550 (from $11,601 to $47,150) is taxed at 12%.
• The remaining $8,250 (from $47,151 to $100,525) is taxed at 22%.

Note: These rates are based on the official tax rate table provided by the IRS.

Step 3: Tax Calculation

To find out how much tax you owe:

• 10% Bracket: $11,600 × 10% = $1,160
• 12% Bracket: $35,550 × 12% = $4,266
• 22% Bracket: $8,250 × 22% = $1,815

Add these amounts together to get your total tax: $1,160 + $4,266 + $1,815 = $7,241

Maximizing Tax Savings

You might be able to lower your tax bill by claiming tax credits and additional tax deductions. For example, tax credits directly reduce your tax bill, while deductions reduce your taxable income.

Withholding and Refunds

If you work for an employer, you fill out a W-4 form, which tells your employer how much tax to withhold from each paycheck. This amount is reported on your W-2 form at the end of the year.

• Under-Withholding: If your employer withheld less than the amount you owe, you will need to pay the difference when you file your tax return.
• Over-Withholding: If your employer withheld more than you owe, you will receive a refund when you file your tax return.

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Related: How much money do you have to make to not pay taxes?

Federal Tax Brackets

How do tax brackets work? Are there state tax brackets and how are those applied or calculated? How do I know my tax rate?

• For the 2023 tax year, there are 7 tax brackets that range from $0 of income to over $530,000; the tax rates range from 10% to 37% and are affected by a taxpayer's filing status - use this tool to determine your filing status.
• The income taxes for a given amount of income is taxed based on these rates and they start at the lowest and end in the bracket that matches the taxable income. In other words, if your highest tax bracket is 26%, your entire income is not taxed at 26%, but is taxed in separate brackets leading up to your highest tax rate.
• Review states with the highest and lowest tax rates plus the most tax-friendly states to retire in - get your state taxes done with your IRS return.
• Let us do the math for you! Calculate your actual income taxes by year and find out what your marginal tax rate, effective tax rate, and the actual tax rates are - start the tax rate calculator below.

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Federal Tax Rates

When someone asks you what your your current tax bracket is, they generally are asking for the tax rate of the highest bracket your income falls into for the given tax year.

• Tax bracket rate: The 2023 year tax brackets range from 10% to 37%.
• Marginal tax rate: The marginal tax rate is the percentage number of the highest tax bracket used to calculate taxes due. In the example used on this page, a $70,000 income would fall into the 22% tax bracket rate if the taxpayer uses the standard deduction. If the taxpayer applied the itemized deduction method, the marginal tax rate could be lowered even further if they had enough deductions.
• Effective tax rate: The effective tax rate is the result of dollar amount in taxes due divided by the taxable income.
• Actual tax rate: The actual tax rate is the result of dollar amount in taxes due divided by the gross or adjusted gross income for a given tax year.

Taxpayer Case Study for 2023 Tax Rate and Bracket Calculation

Take a look at this case study as it demonstrates how IRS taxes are calculated by income tax bracket or find state-related tax rate information for all states. Note: in the scenario below, we are comparing a taxpayer who takes the standard deduction to the same taxpayer who qualifies for itemized deductions in a total of $18,000 - this amount varies per-person based on their actual deductions.

• Use the RATEucator and calculate your personal tax rates by tax brackets.
• Or estimate your tax return and use the 2023 tax year tax estimator.
• Did you know that only on eFile.com can you prepare multiple state returns for one low price, not per state?
• Start IT free and pay only when you are satisfied with your return; IT's that simple.
• The tax return due date is around or on April 15. Use the tax estimator or RATEucator before eFileIT by Tax Day.
• Calculate all state income taxes by tax rate, income, and filing status; know what your state taxes may look like before you eFileIT!

Below are income tax bracket and rate tables links by tax year. You can calculate your personal income tax rates with the eFile.com RATEucator by year.

• 2020 tax year income tax brackets and rates
• 2021 tax year income tax brackets and rates
• 2022, 2023, 2024 tax year income tax brackets and rates

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