What is My Tax Bracket?

Progressive system, marginal rates

The federal income tax is progressive, meaning that tax rates increase as your taxable income goes up.

For example, in 2021,

  • Income is taxed at seven different rates:  

    • 10, 12, 22, 24, 32, 35 and 37 percent.

  • These are marginal rates, meaning that each rate applies only to a specific slice of income, rather than to your total income.

  • The rate that applies to the top slice of your income is your tax bracket.

  • A simplified example of brackets

    For a simple example of how progressive taxation works, say the government has three marginal rates, set up like this:

    • 10%: $0 to $20,000

    • 20%: $20,001 to $50,000

    • 30%: $50,001 and above

    Now, let's say your taxable income is $75,000. This would put you in the 30% bracket.

    • The first $20,000 of that would be taxed at 10%, or $2,000.

    • The next $30,000 would be taxed at 20%, or $6,000.

    • The final $25,000 of your income would be taxed at 30%, or $7,500.

    • Your total tax would be: $2,000 + $6,000 + $7,500 = $15,500.

    In this scenario, even though you're in the 30% bracket, you would actually pay only about 20.7% of your income in taxes.

    Taxable income is what matters

    Tax brackets apply only to your taxable income—that is, your total income minus all your adjustments and deductions.

    For example, in 2021, let's say a married couple files jointly with a combined total income of $80,400. They take the 2021 standard deduction amount of $25,100 and each spouse takes a $6,000 IRA deduction.

    • $6,000 + $6,000 + $25,100 = $37,100 deductions

    • $82,100 total income – $35,800 deductions = $45,000 taxable income

    These deductions could reduce their taxable income by $35,800 and help drop the family into a lower tax bracket.

    Adjusting tax bracket parameters

    Congress decides how many tax brackets there are and what the rates will be for each bracket. It's the Internal Revenue Service's job to adjust income thresholds to keep pace with inflation.

    For example, in the 2021 tax year, for a married couple filing a joint return,

    • The 10% bracket applied to the first $19,900 in taxable income.

    • The 12% bracket went up to $8,050.

    • The 22% bracket went up to $172,750, and so on.

    • The top rate, 37%, applied when taxable income topped $628,300.

    For single taxpayers, the thresholds were lower. The IRS announces the tax brackets for each year before that year begins.

    Remember, with TurboTax, we'll ask you simple questions about your life and help you fill out all the right tax forms. With TurboTax you can be confident your taxes are done right, from simple to complex tax returns, no matter what your situation.

    We also offer a handy Tax Bracket Calculator to help you easily identify your tax bracket.

    For more tax tips in 5 minutes or less, subscribe to the Turbo Tips podcast on Apple Podcasts, Spotify and iHeartRadio 

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