Taxes. Yuck. No one likes taxes. But unfortunately, they are a part of life no matter where you are or your situation. But a lot of people don’t really understand how tax brackets work. A lot of people might be afraid to get a raise because it will move them into the next tax bracket and they will actually make less money. But that’s not how it works. Let me explain.
Different Tax Brackets
First, let me say that I am talking strictly about federal income taxes. This is the main tax that people think of when they think of taxes taken out of your paycheck. But there are several others as well that could easily be their own articles. Some of them are:
- State income tax
- FICA taxes
- Social Security tax
- Medicare tax
- Local taxes
I won’t go into each of these in this article because it would get really confusing really fast.
As far as how tax brackets work, each of us will have a different tax situation. But there are four main ways (filing statuses) that we can pay our federal income taxes.
- Single
- Married Filing Joint
- Head of Household
- Married Filing Separate
- Qualifying Widow(er) with a Dependent Child
Each one of these filing statuses have different tax brackets. But here is how they look (2023 numbers):
For single filers in 2023:
| Tax Rate | Bracket | Tax Owed |
| 10% | $0 to $11,000 | 10% |
| 12% | $11,001 to $44,725 | $1,100 + 12% of income over $11,000 |
| 22% | $44,726 to $95,375 | $5,147 + 22% of income over $44,725 |
| 24% | $95,376 to $182,100 | $16,290 + 24% of income over $95,375 |
| 32% | $182,101 to $231,250 | $37,104 + 32% of income over $182,100 |
| 35% | $231,251 to $578,125 | $52,832 + 35% of income over $231,250 |
| 37% | $578,126+ | $174,238.25 + 37% of income over $578,125 |
For married filing joint filers in 2023:
| Tax Rate | Bracket | Tax Owed |
| 10% | $0 to $22,000 | 10% |
| 12% | $22,001 to $89,450 | $2,200 + 12% of income over $22,000 |
| 22% | $89,451 to $190,750 | $10,294 + 22% of income over $89,450 |
| 24% | $190,751 to $364,200 | $32,580 + 24% of income over $190,750 |
| 32% | $364,201 to $462,500 | $74,208 + 32% of income over $364,200 |
| 35% | $462,501 to $693,750 | $105,664 + 35% of income over $462,500 |
| 37% | $693,751+ | $186,601.50+ 37% of income over $693,750 |
For married filing separately filers in 2023:
| Tax Rate | Bracket | Tax Owed |
| 10% | $0 to $11,000 | 10% |
| 12% | $11,001 to $44,725 | $1,100 + 12% of income over $11,000 |
| 22% | $44,726 to $95,375 | $5,147 + 22% of income over $44,725 |
| 24% | $95,376 to $182,100 | $16,290 + 24% of income over $95,375 |
| 32% | $182,101 to $231,250 | $37,104 + 32% of income over $182,100 |
| 35% | $231,251 to $346,875 | $52,832 + 35% of income over $231,250 |
| 37% | $346,876+ | $93,300.75 + 37% of income over $346,875 |
For head of household filers in 2023:
| Tax Rate | Bracket | Tax Owed |
| 10% | $0 to $15,700 | 10% |
| 12% | $15,701 to $59,850 | $1,570 + 12% of income over $15,700 |
| 22% | $59,851 to $95,350 | $6,868 + 22% of income over $59,850 |
| 24% | $95,351 to $182,100 | $14,687 + 24% of income over $95,350 |
| 32% | $182,101 to $231,250 | $35,498 + 32% of income over $182,100 |
| 35% | $231,251 to $578,100 | $51,226 + 35% of income over $231,250 |
| 37% | $578,101+ | $172,623.50 + 37% of income over $578,100 |
How Tax Brackets Work
Have you ever thought that you should avoid getting a raise or a bonus because it will put you in the next tax bracket? I have worked with many clients who have thought that over the years.
But it is simply not true.
In the US, we use marginal tax brackets. This means that each dollar that you earn that is in the next highest tax bracket is taxed at that higher rate. NOT THE ENTIRE AMOUNT.
So for example, if you are a single filer, and you make $11,000 for the year, you will be taxed $1,100 (because you are in the 10% bracket).
But you are offered a raise that would bring your income up to $12,000 for the year. And you are afraid that since you will be in the 12% bracket, you will have to pay 12% on that income.
But that is not how it works!
You will still pay the same $1,100 (10%) tax on the first $11,000 that you earned. And you will be taxed 12% on ONLY the next $1,000 that you earned.
That’s how marginal tax brackets work. 🙂
So never be afraid of taking a raise or a bonus at your job. You will bring home more money. You might just have to pay a bigger piece of those next dollars to the government. But you will still get to bring home more money!
Final Thoughts
Taxes can be confusing. If you are unsure of what to do about yours, contact a CPA. They can help you sort through it with ease.
Just remember that you should never be afraid of a raise or bonus because you think you will bring home less money. That’s not how it works. 🙂
I am here to help you!
You can do this!
Until next time!
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