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.
Tax rate
Taxable income, single filer
Taxable income, married and filing jointly
10% $9,525 or less $19,050 or less
12% $9,526 to $38,700 $19,051 to $77,400
22% $38,701 to $82,500 $77,401 to $165,000
24% $82,501 to $157,500 $165,001 to $315,000
32% $157,501 to $200,000 $315,001 to $400,000
35% $200,001 to $500,000 $400,001 to $600,000
37% $500,001 or more $600,001 or more
Source: U.S. Congress, 2018
So what does this mean?
Joe is single and has $50,000 in taxable income. Let’s calculate his taxes.
From $0 to $9,525, Joe is taxed at 10%.
$9,525 x 10% = $953
From $9,526 to $38,700, Joe is taxed at 12%.
$29,174 x 12% = $3,501
From $38,701 to $50,000, Joe is taxed at 22%.
$11,299 x 22% = $2,486
TOTAL TAX = $6,940
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 14% of his taxable income.
Lisa is single and has $100,000 in taxable income.
From $0 to $9,525, Lisa is taxed at 10%.
$9,525 x 10% = $953
From $9,526 to $38,700, Lisa is taxed at 12%.
$29,174 x 12% = $3,501
From $38,701 to $82,500, Lisa is taxed at 22%.
$43,799 x 22% = $9,636
From $82,501 to $100,000, Lisa is taxed at 24%.
$17,499 x 24% = $4,200
TOTAL TAX = $18,290
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 $19,050 they make is taxed at 10%.
$19,050 x 10% = $1,905
From $19,051 to $77,400, they are taxed at 12%.
$58,349 x 12% = $7,002
From $77,401 to $150,000, they are taxed at 22%.
$72,599 x 22% = $15,972
TOTAL TAX = $24,879
If they had stayed single, Joe and Lisa would have paid a combined $25,230. Filing jointly saves them $351, 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.
