Tax Brackets: Your Comprehensive Guide

• There are seven federal income tax brackets, ranging from 10% to 37%.
• Brackets are part of a progressive taxation system that charges increasingly higher rates on higher tiers of income.
• Your marginal tax rate is what you pay on the last dollar of income.

Introduction to tax brackets

What are tax brackets?

The U.S. has a progressive federal income tax system. To determine the tax someone owes, the government uses a system of brackets, where different chunks of a person's earnings are taxed at rates that gradually increase as the total amount of income increases.

You can use tax brackets to estimate how much you'll pay in taxes for the year. However, a common misperception is that someone whose total taxable income puts them into, say, the 22% tax bracket means that they pay 22% on all of their earnings. 

In fact, they would only pay that much on the upper-most portion of it. The rate they pay on the last dollar is known as the marginal tax rate.

How tax brackets work 

There are seven brackets, ranging from 10% to 37%. They have been in place since 2018 and are set to expire at the end of 2025, unless Congress extends the law. The rate at which you will be taxed on your income depends on your earnings and your filing status.

"Your tax bracket is evaluated by viewing all your income, including required minimum distributions (RMDs) from IRAs, Social Security, and possibly even a pension if you are fortunate to have one," says Peter Klein, founder and chief investment officer at ALINE Wealth.

From this income, you can take deductions and adjustments to arrive at your taxable income, which is then applied to the brackets to figure out the tax you owe. Each layer of income is taxed at a progressively higher rate. Any income above $609,350 for a single filer is taxed at the highest rate, 37%.

Overview of 2024 tax brackets

Below are the federal income tax brackets for single filers, heads of household, qualifying surviving spouses, and married people who file either jointly or separately for 2024.

2024 federal income tax brackets

Difference between marginal and effective tax rates

Marginal and effective tax rates are two ways to measure what you pay the IRS in federal income tax.

Your marginal tax rate is the highest tax rate your taxable income falls into. If your income after all deductions and adjustments is $100,000, you'd be in the 22% tax bracket. But only the income within the brackets — a total of $52,849 — is taxed at 22%.

Your effective tax rate is the actual percentage of taxes you pay overall. You don't need to look at the marginal tax brackets to determine your effective tax rate. Instead, you divide your total tax liability by your annual taxable income. This is something easily calculated by looking at Form 1040 of your tax return after you've filled it out.

How to determine your tax bracket

Calculating taxable income

The first step to determining your tax bracket is adding up all sources of income. Types of income that are taxable include wages and tips, self-employment earnings, realized investment gains, sales of capital assets, retirement plan distributions, Social Security benefits, and alimony payments from a pre-2018 divorce agreement. 

Then, you may be able to take above-the-line deductions, or adjustments, to reduce your gross income. These include things like premiums paid for self-employed health insurance, one half of the self-employment tax, early withdrawal penalties certain savings products, up to $2,500 in student loan interest, pre-tax contributions to a 401(k) or IRA or health savings account (HSA), and up to $250 in educator expenses.

The amount left after subtracting those expenses is your adjusted gross income, or AGI. From there, you can subtract either the standard deduction or itemize your deductions — whichever total is higher. The standard deduction is a preset amount available to anyone, with a different amount for each filing status. People who are over 65 and/or disabled are eligible for an additional amount. 

If you have high medical bills not covered by insurance, large charitable contributions, mortgage interest, or state and local taxes, you may choose to claim these expenses as itemized deductions instead of taking the standard deduction. 

After reducing your AGI by either the standard deduction or itemized deductions, you have finally arrived at your taxable income. 

Factors that affect your tax bracket

There are five filing statuses, which each correspond to a different set of tax brackets: single, married filing separately, married filing jointly, head of household (single filers with dependents), and qualifying surviving spouse.

The married filing jointly and surviving spouse filing statuses use the same set of tax brackets. The single and married filing separately filing statuses have virtually the same set of tax brackets, except for the last two marginal tax rates — 35% and 37%. 

Examples and scenarios

Let's say you're an individual filer with an AGI of $65,000 and you take the standard deduction in 2024 of $14,600. That leaves a taxable income of $50,400, putting you in the 22% bracket. But it doesn't mean you pay a 22% tax on all of your earnings. Instead, your income would be taxed as follows:

• $11,600 taxed at 10%, resulting in $1,160 of income tax
• The amount between $11,601 and $47,150 (or $35,549) is taxed at 12%, for a total tax of about $4,265
• The amount between $47,151 and $50,400 (or $3,249) is taxed at 22%, for a total tax of about $714

So putting it all together, your total federal income tax for the year would be $6,139. 

You calculate your effective tax rate by dividing your total tax liability, $6,139, by your annual taxable income, $50,400. That's an effective tax rate of 12.18%.

Impact of tax brackets on your tax liability

If your marginal tax rate doesn't tell you how much tax you'll actually pay, why do you even need to know what it is? For one thing, it's because you can only determine your effective tax rate by calculating total tax liability.

Likewise, understanding which bracket you're in helps you understand how changes in your earnings will affect your overall tax burden, says Sri Reddy, senior vice president of retirement and income solutions at Principal Financial Group.

Knowing your marginal tax bracket can also influence how you approach the available deductions, such as if you choose to use the standard deduction or itemize, Reddy says.

Your marginal tax rate can also inform your other financial decisions.

"We often find clients will calculate the amount to convert to Roth, how to contribute to a retirement plan, when to sell or hold long-term capital gains, and potentially how much to give to charity based on their tax bracket," says David Elder, wealth manager and partner at Merit Financial Advisors.

If you're in a higher tax bracket, you may want to prioritize pre-tax savings such as those in a traditional IRA or 401(k) to reduce your current tax bill. Meanwhile, someone in a lower tax bracket may use the opportunity to fund a Roth IRA, which doesn't qualify for a current tax deduction but can generate tax-free income in retirement.

Understanding your marginal tax bracket is particularly important for retirees and pre-retirees. "If you have accounts that are pre-tax and will require minimum distributions upon reaching age 72, you may not want to wait that long if you're in a lower tax bracket," says Neel Shah, a certified financial planner and estate planning attorney at Omni 360 Advisors. 

Changes in tax brackets for 2024

The IRS adjusts the tax brackets for inflation each year to prevent so-called "bracket creep," according to the Tax Foundation. Bracket creep is when inflation, rather than increases in real income, pushes people into higher tax brackets. In other words, you could wind up with a higher tax bill even if your income hasn't changed. 

The IRS bases its adjustments on the Chained Consumer Price Index (C-CPI), a type of cost-of- living index that is said to be more accurate than the Consumer Price Index since it accounts for substitutions people make when prices rise at the supermarket and other places.

Stubborn inflation over the last two years resulted in some of the largest year-over-year tax bracket increases in 2024 and 2023, which saw a 5.4% increase and a 7.1% increase, respectively. The tax bracket adjustments for 2025 are expected to be smaller, thanks to cooling inflation.

Tax planning strategies

Income splitting and shifting

If you own a business or have a side hustle, you may have more control over when you accept income than a traditional employee. If you're pushing up against the top end of a tax bracket and want to avoid jumping into the next one and owing more in federal income taxes, you might consider waiting to invoice a client or vendor until the beginning of next year.

Maximizing deductions and credits

Taking advantage of various tax deductions can ensure that less of your gross income is taxable. For example, as a business owner you may be able to write off, or deduct, business expenses, and still claim the standard deduction. If you're a homeowner, you may be able to deduct mortgage interest payments and property taxes paid if you itemize deductions.

Tax credits can be helpful for reducing your tax liability too, but they cannot help you get into a lower tax bracket. Credits are applied after your tax bill has already been calculated. 

Tax-advantaged accounts

Saving in retirement accounts that accept pre-tax contributions is an excellent way to reduce the amount of income that is taxable at the federal level.

For instance, contributing the maximum amount to a 401(k) in 2024 means you can knock $23,000 off your gross income. If you don't have access to a workplace retirement plan, maxing out a traditional IRA can get you a $7,000 deduction.

Charitable contributions

Donations to tax-exempt charities and religious organizations qualify for a tax deduction if you itemize your deductions. 

In order to itemize, your charitable contributions must total, with other qualifying expenses such as mortgage interest and state and local taxes, more than the standard deduction for your filing status. One way to meet that threshold is by bunching charitable contributions you would otherwise spread over a few years into a single year. 

FAQs on finding your tax bracket

Tanza Loudenback

Tanza Loudenback is a personal finance expert and a Certified Financial Planner (CFP). She was the founding reporter of Personal Finance Insider, covering topics including taxes, retirement planning, banking, real estate and mortgages, and budgeting. Her work has been featured in WSJ Buy Side, Fortune Recommends, Korn Ferry, TheStreet, Morgan Stanley Wealth Management, and Fidelity. ExperienceTanza was the first reporter on the Personal Finance Insider team. In addition to helping build the vertical from the ground up, she helmed a biweekly advice column answering readers’ personal finance questions and launched a personal finance newsletter. She also published two e-books under the Personal Finance Insider brand.She was the editorial lead on Master Your Money series, a two-year-long Business Insider series providing financial advice to millennials. She managed Master Your Money bootcamp events over the course of the series. While at BI, she also expanded tax coverage to include a guide to the best tax software and commissioned a panel of experts to review all articles. Tanza obtained her CFP license in 2020. She aims to simplify personal finance concepts for readers so that they can make smart decisions with their money. ExpertiseTanza’s areas of personal finance expertise include:

• Real estate/mortgages
• Taxes
• Retirement planning
• Small business finances
• Banking
• Budgeting

Education Tanza is a graduate of Elon University with a degree in print and online journalism, with a minor in Italian studies.

Read more Read less