There are seven marginal tax rates that apply to seven brackets of income. The income ranges that these rates apply to adjust every year to take inflation into account. Here are the tax rates and federal income brackets for tax years 2022 and 2023.
Federal Income Tax Brackets for Tax Year 2022 (Filed in 2023)
In the table below, you can find the tax rate and the income brackets for three different filing statuses. The tax rate only applies to the income you earn within that bracket. For example, if you’re a single filer and your taxable income is $40,000 for tax year 2022, you’d pay 10% tax on the first $10,275, and then 12% tax on the difference of $40,000 and $10,275 ($29,725). Your tax bill would be $4,594.50 for tax year 2022. This is a simple example, so work with a tax professional or reputable tax company to figure out your annual income tax bill.
Marginal Tax Rates and Income Brackets
Tax rates are defined by year and by filing status. Ordinary income tax rates apply to most kinds of income, and they’re distinguished from the capital gains tax rate that’s imposed on long-term gains and qualified dividends. Your marginal tax rate is the highest tax rate imposed on your income. Marginal tax brackets refer to the tax imposed on the next dollar earned. This is a useful concept for tax planning because it enables people to analyze the tax impact of additional income or deductions.
The ‘Hidden’ 0% Tax Rate
Every taxpayer is entitled to claim a standard deduction or to itemize their deductions. These deductions effectively constitute a 0% tax rate in the sense that there’s no tax imposed on income represented by these deductions. You can deduct income and expenses from your gross income to arrive at your taxable income. For example, if your gross income is $100,000, but you deduct $10,000 in expenses, your taxable income is now $90,000, and that puts you into a lower tax bracket, which helps save you money on your tax bill. You pay $0 in taxes (so a 0% tax rate) on that $10,000 in deductions.
Progressive Tax Rates and Income Brackets
U.S. tax rates are referred to as “progressive,” because the tax rate that applies increases incrementally as an individual’s income increases. For example, someone with $1 million in income would have their income taxed at every tax bracket. Someone with $5,000 in income after deductions would be taxed only at the 10% bracket.
