How Do Tax Brackets Work?

Tax brackets can be confusing. Find out which tax brackets you fall into and how to calculate what you'll owe.
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Have you ever been nervous about being bumped into a higher tax bracket and paying more taxes on your entire income as a result? There’s a little more to it than that. We looked to the experts at TaxAct to find out how tax brackets work.

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How a Progressive Income Tax System Works

The United States uses a progressive income tax system, which means the percentage you owe increases with the money you make. Each percentage increase is laid out in steps, or brackets, for income ranges. Here are the tax brackets for 2022 for taxes due in April 2023.

Tax RateSingle FilerJoint FilersMarried Filing SeparatelyThe Head of Household
10%$0 to $10,275$0 to $20,550$0 to $10,275$0 to $14,650
12%$10,276 to $41,775$20,551 to $83,550$10,276 to $41,775$14,651 to $55,900
22%$41,776 to $89,075$83,551 to $178,150$41,776 to $89,075$55,901 to $89,050
24%$89,076 to $170,050$178,151 to $340,100$89,076 to $170,050$89,051 to $170,050
32%$170,051 to $215,950$340,101 to $431,900$170,051 to $215,950$170,051 to $215,950
35%$215,951 to $539,900$431,901 to $647,850$215,951 to $323,925$215,951 to $539,900
37%$539,901 or more$647,851 or more$323,926 or more$539,901 or more
how do tax brackets work

The Tax Bracket Misconception

Some people mistakenly believe that their entire income is taxed at the rate of the bracket they fall into – fortunately, that’s not how tax brackets work.

Let’s say you have a gross income of $90,000 and you’re a single filer. That means your highest tax bracket is 24%, but that doesn’t mean you owe $21,600 in taxes. That 24% tax rate is going to apply to only $924 of your income, since the threshold for that tax bracket is $89,076. If your income is $90,000, you’re actually in four different tax brackets, and different segments of your income are subject to different tax rates.

You pay 10% on your first $10,275.
12% on the amount between $10,276 and $41,775.
22% on the amount between $41,775 and $89,075.
24% on your remaining income after $89,075.

Here’s how the math shakes out.

$10,275 * 10% =$1,027
($41,775 – $10,275) * 12% =+ $3,780
($89,075 – $41,775) * 22% =+ $10,406
($90,000 – $89,075) * 24% =+ $222
Total income tax =$15,435

There’s a big difference between $21,600 and $15,435, so it’s really important to remember that if you make more than $10,275 per year, you’re in more than one tax bracket. So even though someone with an income of $90,000 is in the 24% tax bracket, their effective tax rate (or ETR) is actually around 17.15%.

If you’re worried that getting bumped to a higher tax bracket would actually leave you with less money than you had to start out with, you can put those fears aside. Because of the way tax brackets work, making more money shouldn’t wind up costing more money. Of course, other factors like differences in tax benefits, charitable donations and retirement plan contributions can affect your final tax bill.

AAA members can save 25% on state and federal filings with TaxAct.

This article is for informational purposes only and is not financial advice.

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