In the US, the government taxes different levels of income at different rates. Federal income tax brackets indicate the rate of tax for each level of taxable income for each filing status. As a result, as taxpayer income increases, it is taxed at higher rates, and taxpayers with lower income pay taxes at lower rates. This approach is referred to as a progressive tax system.
Federal Tax Brackets for 2021
For the 2021 tax year, the following are the seven federal tax brackets for single and married filing separately filers (and married couples filing jointly):
- 10% on income up to $9,950 ($19,900)
- 12% on income over $9,950 ($19,900)
- 22% on income over $40,525 ($81,050)
- 24% on income over $86,375 ($172,750)
- 32% on income over $164,925 ($329,850)
- 35% on income over $209,425 ($418,850)
- 37% on income over $523,600 ($628,300)
Federal Tax Brackets for 2022
The IRS revises the federal tax brackets to address the annual effects of inflation. They announced the following 2022 tax brackets in November 2021 for tax returns filed in 2023 for single and married filing separately filers (and married couples filing jointly):
- 10% on income up to $10,275 ($20,550)
- 12% on income over $10,275 ($20,550)
- 22% on income over $41,775 ($83,550)
- 24% on income over $89,075 ($178,150)
- 32% on income over $170,050 ($340,100)
- 35% on income over $215,950 ($431,900)
- 37% on income over $539,900 ($647,850)
Here is an example of how to calculate your tax liability using the US tax brackets.
If a single filer earned $80,000 in 2021, they would pay:
- 10% on income up to $9,950 ($995), plus
- 12% on income from $9,951 to $40,525 ($3,669), plus
- 22% on income from $40,526 to $80,000 ($8,684)
The total tax would be the sum of the amounts above, or $13,348. When this amount is divided by taxable income, that percentage is approximately 16%, which is referred to as the effective tax rate. Their effective tax rate is lower than the top tax bracket the taxpayer is in (22%), which is referred to as their marginal rate.
Taxable income and the brackets a taxpayer's income fall under depend on both income and deductions. Adjustments to income, the standard deduction, and tax credits affect the final amount of tax to be paid.
Most states have state tax brackets that tax income similar to the federal tax bracket approach, but state tax brackets are different from and generally lower than the federal ones.