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.
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% $9,700 or less
12% $9,701 to $39,475
22% $39,476 to $84,200
24% $84,201 to $160,725
32% $160,726 to $204,100
35% $204,101 to $510,300
37% $510,301 or more
Taxable income, married and filing jointly
Tax rate
10% $19,400 or less
12% $19,401 to $78,950
22% $78,951 to $168,400
24% $168,401 to $321,450
32% $321,451 to $408,200
35% $408,201 to $612,350
37% $612,351 or more
Source: U.S. Congress, 2019
So what does this mean?
Joe is single and has $50,000 in taxable income. Let’s calculate his taxes.
From $0 to $9,700, Joe is taxed at 10%.
$9,700 x 10% = $970
From $9,701 to $39,475, Joe is taxed at 12%.
$29,775 x 12% = $3,573
From $39,476 to $50,000, Joe is taxed at 22%.
$10,525 x 22% = $2,315
TOTAL TAX = $6,858
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 $9,700, Lisa is taxed at 10%.
$9,700 x 10% = $970
From $9,701 to $39,475, Lisa is taxed at 12%.
$29,775 x 12% = $3,573
From $39,476 to $84,200, Lisa is taxed at 22%.
$44,724 x 22% = $9,840
From $84,201 to $100,000, Lisa is taxed at 24%.
$15,800 x 24% = $3,792
TOTAL TAX = $18,175
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 $19,400 they make is taxed at 10%.
$19,400 x 10% = $1,940
From $19,401 to $78,950, they are taxed at 12%.
$59,550 x 12% = $7,146
From $78,951 to $150,000, they are taxed at 22%.
$71,050 x 22% = $15,631
TOTAL TAX = $24,717
If they had stayed single, Joe and Lisa would have paid a combined $25,033. Filing jointly saves them $316, 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.
