No one likes talking about tax. However, they are one of the things in life that we cannot seem to avoid. While there are several different types of taxes, let me explain how income taxes work. This type of tax is generally the largest most of us will pay. Let’s go.
What is Income Tax?
Income tax is exactly like it sounds. It is a tax on the income that you bring in.
As long as you have a W-2 job or have 1099 income, you will have income tax.
Yes, there might be deductions and credits that you can get so that your income tax burden can be lowered to 0% (or sometimes even below 0%), but that is for another article.
At the end of the day, income tax is simply the tax that is levied by the federal government (and usually the state government) on the amount of income that you bring in.
So the more income that you bring into your household, the more you will have to pay in taxes.
Income 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 2024:
| Tax Rate | Bracket | Tax Owed |
| 10% | $0 to $11,600 | 10% |
| 12% | $11,601 to $47,150 | $1,160 + 12% of income over $11,600 |
| 22% | $47,151 to $100,525 | $5,426 + 22% of income over $47,150 |
| 24% | $100,526 to $191,950 | $17,168 + 24% of income over $100,525 |
| 32% | $191,951 to $243,725 | $39,110 + 32% of income over $191,950 |
| 35% | $243,726 to $609,350 | $55,678 + 35% of income over $243,725 |
| 37% | $609,351+ | $183,645 + 37% of income over $609,350 |
For married filing joint filers in 2024:
| Tax Rate | Bracket | Tax Owed |
| 10% | $0 to $23,200 | 10% |
| 12% | $23,201 to $94,300 | $2,320 + 12% of income over $23,200 |
| 22% | $94,301 to $201,050 | $10,852 + 22% of income over $94,300 |
| 24% | $201,051 to $383,900 | $34,337 + 24% of income over $201,050 |
| 32% | $383,901 to $487,450 | $78,220 + 32% of income over $383,900 |
| 35% | $487,451 to $731,200 | $111,356 + 35% of income over $487,450 |
| 37% | $731,201+ | $196,668+ 37% of income over $731,201 |
For married filing separately filers in 2024:
| Tax Rate | Bracket | Tax Owed |
| 10% | $0 to $11,600 | 10% |
| 12% | $11,601 to $47,150 | $1160 + 12% of income over $11,600 |
| 22% | $47,151 to $100,525 | $5,426 + 22% of income over $47,150 |
| 24% | $100,526 to $191,950 | $17,168 + 24% of income over $100,525 |
| 32% | $191,951 to $243,725 | $39,110 + 32% of income over $191,950 |
| 35% | $243,726 to $365,600 | $55,678 + 35% of income over $243,725 |
| 37% | $365,601+ | $98,334 + 37% of income over $365,600 |
For head of household filers in 2023:
| Tax Rate | Bracket | Tax Owed |
| 10% | $0 to $16,550 | 10% |
| 12% | $16,551 to $63,100 | $1655 + 12% of income over $16,550 |
| 22% | $63,101 to $100,500 | $7,241 + 22% of income over $63,100 |
| 24% | $100,501 to $191,950 | $15,469 + 24% of income over $100,500 |
| 32% | $191,951 to $243,700 | $37,416 + 32% of income over $191,950 |
| 35% | $243,701 to $609,350 | $53,976 + 35% of income over $243,700 |
| 37% | $609,351+ | $181,953 + 37% of income over $609,350 |
This is 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 $11,600 for the year, you will be taxed $1,160 (because you are in the 10% bracket).
But you are offered a raise that would bring your income up to $12,600 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 $1,160 (10%) tax on the first $11,600 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 are inevitable. We all have to deal with them. It is important to understand (at least to a certain extent) how they work and how much you will have to pay.
I hope this helps!
I am here for you!
Until next time!
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