Breaking down the tax 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.
Taxable income, single filer
Tax rate
10% $0 - $10,275
12% $10,275.01 - $41,775
22% $41,775.01 - $89,075
24% $89,075.01 - $170,050
32% $170,050.01 - $215,950
35% $215,950.01 - $539,900
37% Over $539,900
Taxable income, married and filing jointly
Tax rate
10% $0 - $20,550
12% $20,550.01 - $83,550
22% $83,550.01 - $178,150
24% $178,150.01 - $340,100
32% $340,100.01 - $431,900
35% $431,900.01 - $647,850
37% Over $647,850
Source: https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022
So what does this mean?
Joe is single and has $50,000 in taxable income. Let’s calculate his taxes.
From $0 - $10,275, Joe is taxed at 10%.
$10,275 x 10% = $1,027.50
From $10,275.01 - $41,775, Joe is taxed at 12%.
$31,499.99 x 12% = $3,779.99
From $41,775.01 - $50,000, Joe is taxed at 22%.
$8,224.99 x 22% = $1,809.49
TOTAL TAX = $6,616.98
Joe’s marginal tax rate—the rate he pays on his top bracket—is 22%. But in reality, Joe’s tax liability—his effective tax rate—is about 13% of his taxable income.
Lisa is single and has $100,000 in taxable income.
From $0 - $10,275, Lisa is taxed at 10%.
$10,275 x 10% = $1,027.50
From $10,275.01 - $41,775, Lisa is taxed at 12%.
$31,499.99 x 12% = $3,779.99
From $41,775.01 - $89,075, Lisa is taxed at 22%.
$47,299.99 x 22% = $10,405.99
From $89,075.01 - $100,000, Lisa is taxed at 24%.
$10,924.99 x 24% = $2,621.99
TOTAL TAX = $17,835.47
Lisa’s marginal tax rate is 24%. But in reality, Lisa’s tax liability gives her an effective tax rate of about 18%.
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 $0 - $20,550 they make is taxed at 10%.
$20,550 x 10% = $2,055
From $20,550.01 - $83,550, they are taxed at 12%.
$62,999.99 x 12% = $7,559.99
From $83,550.01 - $150,000, they are taxed at 22%.
$66,449.99 x 22% = $14,618.99
TOTAL TAX = $24,233
If they had stayed single, Joe and Lisa would have paid a combined $24,452. Filing jointly saves them $219, sometimes referred to as a “marriage benefit.”
If Joe and Lisa’s tax liability 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 and deductions based on life events could affect Joe and Lisa’s tax liability.
If they start a family, they may qualify for new deductions and child care credits, and their tax liability would likely shrink.