How Do Tax Brackets Work?


What are federal tax brackets and rates and how do they work? In the United States, taxable income is not taxed at only one fixed tax rate. Instead, the rates change by the bracket the income falls into. A portion of the adjusted gross income is assigned into tax brackets and each bracket is taxed at a different rate; tax brackets and rates change by year.

See all tax rates by year | Calculate your personal tax rate

To better understand how tax rates or brackets are applied to income, let's look at a scenario. The case study below outlines how $60,000 in income earned by a person filing as single is divided up into tax brackets:

  1. We can take the standard deduction of $13,850 from the $60,000 income which results in $46,150 of taxable income.
  2. $11,000 is taxed at 10%,
  3. $33,725 is taxed at 12%, and
  4. The remaining $1,425 is taxed at 22%.

Note: these rates are coming from our tax rate table as issued by the IRS.

This means that an individual making $60,000 annually pays a total of $5,096 in income taxes for this year. You can further reduce this amount by maximizing tax savings, typically done through taking tax credits and other tax deductions or income adjustments you may qualify for. In most cases, if you work for an employer and submit them a W-4, this will allow them to withhold money from your paychecks which covers this amount in taxes as reported on your W-2. If you withheld less, you may owe taxes; if you withheld too much, you should get a refund when you file.

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Related: How much money do you have to make to not pay taxes?

Federal Tax Brackets

How do tax brackets work? Are there state tax brackets and how are those applied or calculated? How do I know my tax rate?

  • For the current tax year, there are 7 tax brackets that range from $0 of income to over $530,000; the tax rates range from 10% to 37% and are affected by a taxpayer's filing status - use this tool to determine your filing status.
  • The income taxes for a given amount of income is taxed based on these rates and they start at the lowest and end in the bracket that matches the taxable income. In other words, if your highest tax bracket is 26%, your entire income is not taxed at 26%, but is taxed in separate brackets leading up to your highest tax rate.
  • Review states with the highest and lowest tax rates plus the most tax-friendly states to retire in - get your state taxes done with your IRS return.
  • Let us do the math for you! Calculate your actual income taxes by year and find out what your marginal tax rate, effective tax rate, and the actual tax rates are - start the tax rate calculator below.

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Federal Tax Rates

When someone asks you what your your current tax bracket is, they generally are asking for the tax rate of the highest bracket your income falls into for the given tax year.

  • Tax bracket rate: The current year tax brackets range from 10% to 37%.
  • Marginal tax rate: The marginal tax rate is the percentage number of the highest tax bracket used to calculate taxes due. In the example used on this page, a $60,000 income would fall into the 22% tax bracket rate if the taxpayer uses the standard deduction. If the taxpayer applied the itemized deduction method, the marginal tax rate could be lowered even further if they had enough deductions.
  • Effective tax rate: The effective tax rate is the result of dollar amount in taxes due divided by the taxable income.
  • Actual tax rate: The actual tax rate is the result of dollar amount in taxes due divided by the gross or adjusted gross income for a given tax year.

Taxpayer Case Study for Tax Rate and Bracket Calculation

Take a look at this case study as it demonstrates how IRS taxes are calculated by income tax bracket or find state-related tax rate information for all states. Note: in the scenario below, we are comparing a taxpayer who takes the standard deduction to the same taxpayer who qualifies for itemized deductions in a total of $16,000 - this amount varies per-person based on their actual deductions.

Line Item
Amount, Rate, Type
$46,150 or $44,000
10% Tax Bracket up to $11,000: $11,000 or $11,000 * 10%
$1,100 or $1,100
12 % Tax Bracket up to $11,001 to $44,725: $33,725 or $33,000 * 12%
$4,047 or $3,960
22% Tax Bracket up to $44,726 to $95,375: $1,425 or $0 * 22%
$314 or $0
Taxes due before Tax Credits
$5,461 or $5,060
$5,461 or $5,060
22% or 12%
11.83% or 11.5 %
9.1% or 8.43%

Use the RATEucator to calculate your income taxes and tax rates by tax year.

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The following links are mentioned in this audio:
Support | 10 Tax Calculators | DEPENDucator | EICucator | Dare To Compare | Taxesfaction

Below are income tax bracket and rate tables links by tax year. You can calculate your personal income tax rates with the RATEucator by year.