Breaking down the brackets
Each bracket of your income is taxed at a different rate. As you make more money, a higher percentage may be owed in taxes.
Tax rate
10%
15%
25%
28%
33%
35%
39.6%
Taxable income, single filer
< $9,225
$9,226 to $37,450
$37,451 to $90,750
$90,751 to $189,300
$189,301 to $411,500
$411,501 to $413,200
$413,201 or more
Taxable income, married with joint return
< $18,450
$18,451 to $74,900
$74,901 to $151,200
$151,201 to $230,450
$230,451 to $411,500
$411,501 to $464,850
$464,851 or more
Source: IRS
So what does this mean?
Joe is single and made $50,000 last year.1 Let’s calculate his taxes.
From $0 to $9,225, Joe is taxed at 10%.
$9,225 x 10%=$922.50
From $9,226 to $37,450, Joe is taxed at 15%.
$28,224 x 15%=$4,233.60
From $37,451 to $50,000, Joe is taxed at 25%.
$12,549 x 25%=$3,137.25
TOTAL TAX = $8,293.35
Joe’s marginal tax rate—the rate he pays on his top bracket—is 25%. But in reality, Joe’s tax bill—his effective tax rate—is just 17% of his taxable income.
Lisa is single and made $100,000 last year.1
From $0 to $9,225, Lisa is taxed at 10%.
$9,225 x 10% =$922.50
From $9,226 to $37,450, Lisa is taxed at 15%.
$28,224 x 15%=$4,233.60
From $37,451 to $90,750, Lisa is taxed at 25%.
$53,229 x 25% = $13,324.75
From $90,751 to $100,000, Lisa is taxed at 28%.
$9,249 x 28% = $2,589.72
TOTAL TAX = $21,070.57
Lisa’s marginal tax rate is 28%. But in reality, Lisa’s tax bill gives her an effective tax rate of 21%.
Say Lisa and Joe fall in love and get married. They decide to file a joint tax return, with a combined taxable income of $150,000.
The first $18,450 they made is taxed at 10%.
$18,450 x 10% = $1,845
From $18,451 to $74,900 is taxed at 15%.
$56,449 x 15% = $8,467.35
From $74,901 to $150,000 is taxed at 25%.
$53,229 x 25% = $18,774.75
If they were married but filing separately, Joe and Lisa would have paid a combined $29,363.92. Filing jointly saves them more than $275, sometimes referred to as a “marriage benefit.”
If Joe and Lisa’s tax bill had been higher as a married couple filing jointly, the extra funds owed would be referred to as a “marriage penalty.”
But that’s not all …
Different credits, deductions and exemptions based on life events could affect Joe and Lisa’s tax bill.
If they start a family, their taxable income may be reduced by dependent exemptions and other deductions, and they may be entitled to child care credits. Their tax bill would likely shrink.
If they divorced and Lisa paid Joe alimony,2 those payments would be subtracted from her income, and her taxable income would shrink. Likewise, his taxable income would increase.
1 For simplicity, we assume that in our examples, salary is equal to taxable income, which is the amount you pay taxes on.
2 Alimony payments are subject to certain requirements.
