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Your tax bracket explained

The U.S. has a progressive income tax system that can often be confusing. Different amounts of your income are taxed at different rates, so you’ll likely pay a lower percentage of your income in taxes than the tax bracket you fall into. Here’s how it works.

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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% $9,950 or less

12% $9,950.01 to $40,525

22% $40,525.01 to $86,375

24% $86,375.01 to $164,925

32% $164,925.01 to $209,425

35% $209,425.01 to $523,600

37% Over $523,600

Taxable income, married and filing jointly.

Tax rate

10% $19,990 or less

12% $19,900.01 to $81,050

22% $81,050.01 to $172,750

24% $172,750.01 to $329,850

32% $329,850.01 to $418,850

35% $418,850.01 to $628,300

37% Over $628,300

Source: https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2021

So what does this mean?

Joe is single and has $50,000 in taxable income
.
Let’s calculate his taxes.

From $0 to $9,950, Joe is taxed at 10%.

$9,950 x 10% = $995

From $9,951.01 to $40,525, Joe is taxed at 12%.

$30,573.99 x 12% = $3,669

From $40,525.01 to $50,000, Joe is taxed at 22%.

$9,474.99 x 22% = $2,084

TOTAL TAX = $6,748

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 to $9,950, Lisa is taxed at 10%.

$9,950 x 10% = $995

From $9,951.01 to $40,525, Lisa is taxed at 12%.

$30,573.99 x 12% = $3,669

From $40,525.01 to $86,375, Lisa is taxed at 22%.

$45,849.99 x 22% = $10,087

From $86,375.01 to $100,000, Lisa is taxed at 24%.

$13,625 x 24% = $3,270

TOTAL TAX = $18,021

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 $19,900 they make is taxed at 10%.

$19,900 x 10% = $1,990

From $19,900 to $81,050, they are taxed at 12%.

$61,159 x 12% = $7,338

From $81,050.01 to $150,000, they are taxed at 22%.

$68,950 x 22% = $15,169

TOTAL TAX = $24,407

If they had stayed single, Joe and Lisa would have paid a combined $24,769. Filing jointly saves them $362, 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.

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The material provided on this website is for informational use only and is not intended for financial, tax or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.

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Bank of America and its affiliates do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.