Tax Bracket
A tax bracket is a range of income that is taxed at a specific rate. The U.S. uses a progressive tax system, meaning different parts of your income are taxed at different percentages depending on which bracket they fall into.
💡Simple Definition
A tax bracket is a set income range taxed at a certain percentage. Your income is divided across several brackets—not taxed all at one rate.
⚙️How Tax Brackets Work
Instead of paying one flat tax rate, your income is broken into layers. Each layer (or "bracket") has its own tax rate.
- →The first portion of your income is taxed at the lowest rate
- →The next portion is taxed at a higher rate
- →The next portion is taxed even higher, and so on
Key insight: This is why your marginal tax rate is NOT the same as your effective tax rate.
📊Quick Example
Imagine a simplified bracket system for single filers:
- $0–$10,000→ 10%
- $10,001–$40,000→ 12%
- $40,001+→ 22%
If you earn $50,000, your income falls into all three brackets:
- ✓First $10,000 taxed at 10% = $1,000
- ✓Next $30,000 taxed at 12% = $3,600
- ✓Last $10,000 taxed at 22% = $2,200
Summary:
- Your tax bracket = 22% (highest bracket your income reaches)
- Your marginal rate = 22% (rate on your last dollar)
- Your effective rate = 13.6% ($6,800 ÷ $50,000)
🎯What Determines Your Tax Bracket?
Your bracket depends on:
- 1.Your taxable income
This is your gross income minus deductions and adjustments
- 2.Your filing status
Single, Married Filing Jointly, Head of Household, etc.
- 3.IRS adjustments for inflation each year
Tax brackets change annually to account for cost of living
⭐Why Tax Brackets Matter
Understanding brackets helps you:
📈 Plan for raises
Predict how raises or bonuses will affect your tax
💰 Adjust withholding
Correctly adjust your paycheck withholding
🎯 Know your rate
Understand your marginal tax rate
✅ Bust myths
Avoid the myth that "earning more means losing money"
⚠️Common Misconception
Myth: Many people mistakenly believe that if they enter a higher bracket, ALL their income is taxed at that higher rate.
❌ This is false!
✓ The truth:
Only the income within the bracket is taxed at the higher rate. Your lower income stays in the lower brackets.
Example: If you get a $1,000 raise that pushes you into a higher bracket, only that extra $1,000 is taxed at the higher rate—not your entire income. You will always take home more money when you earn more.
📐Visual Breakdown
How $50,000 income is taxed (simplified example):