Current Income Tax Rates and Brackets
The federal individual income tax has seven tax rates ranging from 10 percent to 37 percent (table 1). The rates apply to taxable income—adjusted gross income minus either the standard deduction or allowable itemized deductions. Income up to the standard deduction (or itemized deductions) is thus taxed at a zero rate.
Federal income tax rates are progressive: As taxable income increases, it is taxed at higher rates. Different tax rates are levied on income in different ranges (or brackets) depending on the taxpayer’s filing status. For tax year 2023, the top tax rate (37 percent) applies to taxable income over $578,125 for single filers and over $693,750 for married couples filing jointly. Additional tax schedules and rates apply to taxpayers who file as heads of household and to married individuals filing separate returns. A separate schedule of tax rates applies to capital gains and dividends. Tax brackets are adjusted annually for inflation.
Basics of Progressive Income Tax Rates
Each tax rate applies only to income in a specific tax bracket. Thus, if a taxpayer earns enough to reach a new bracket with a higher tax rate, his or her total income is not taxed at that rate, just the income in that bracket. Even a taxpayer in the top bracket has some portion of income taxed at the lower rates in the tax schedule. For example, a single filer with $60,000 in taxable income in tax year 2023 falls into the 22 percent bracket but does not pay tax of $13,200 (22 percent of $60,000). Instead, they pay 10 percent of $11,000 plus 12 percent of $33,725 ($44,725 - $11,000) plus 22 percent of $15,275 ($60,000 - $44,725) for a total of $8,508.
All tax brackets for married taxpayers are twice the size of those for singles, except for the penultimate and top bracket. This can cause a “marriage penalty” for some taxpayers in the highest tax brackets, as some couples pay more tax filing a joint return than they would if each spouse could file as a single person. Conversely, because most tax brackets for married couples are twice the size of those for singles, many married couples enjoy a “marriage bonus,” paying less in tax by filing jointly than they would if each partner filed as a single person.
History of Federal Income Tax Brackets and Rates
Over the 100-plus year history of the modern federal income tax (short-lived income taxes existed before Congress ratified the 16th Amendment in 1913), the number of brackets and rates have changed dramatically and frequently. The federal income tax began with seven brackets but that number exploded to more than 50 by 1920 (figure 1). From then until the late 1970s, there were never fewer than 20 brackets. The Tax Reform Act of 1986, reduced the number of brackets from 16 to two, but that number has crept up to the current seven over the last three decades.
The top marginal federal income tax rate has varied widely over time (figure 2). The top rate was 91 percent in the early 1960s before the Kennedy/Johnson tax cut dropped it to 70 percent. In 1981, the first Reagan tax cut further reduced the top rate to 50 percent, and the 1986 tax reform brought it down to 28 percent. Subsequent legislation increased it to 31 percent in 1991 and to 39.6 percent in 1993. George W. Bush’s tax cuts lowered the top rate to 35 percent, but it reverted to 39.6 percent when the American Taxpayer Relief Act of 2012 let the reduced top rate expire as scheduled. The Tax Cuts and Jobs Act lowered the top rate to 37 percent starting in 2018.
Updated January 2024
FAQs
You pay tax as a percentage of your income in layers called tax brackets. As your income goes up, the tax rate on the next layer of income is higher. When your income jumps to a higher tax bracket, you don't pay the higher rate on your entire income.
How is federal income tax rate calculated? ›
The rates apply to taxable income—adjusted gross income minus either the standard deduction or allowable itemized deductions. Income up to the standard deduction (or itemized deductions) is thus taxed at a zero rate. Federal income tax rates are progressive: As taxable income increases, it is taxed at higher rates.
What does 22% tax bracket mean? ›
For 2022, the tax brackets are as follows for single filers: 10% tax rate for income between $0 and $10,275. 12% tax rate for income between $10,276 to $41,775. 22% tax rate for income between $41,776 to $89,075. 24% tax rate for income between $89,076 to $170,050.
How does federal income tax work per paycheck? ›
For employees, withholding is the amount of federal income tax withheld from your paycheck. The amount of income tax your employer withholds from your regular pay depends on two things: The amount you earn. The information you give your employer on Form W–4.
Are tax brackets based on adjusted gross income? ›
Taxable income starts with gross income, then certain allowable deductions are subtracted to arrive at the amount of income you're actually taxed on. Tax brackets and marginal tax rates are based on taxable income, not gross income.
How do federal tax brackets work? ›
You pay tax as a percentage of your income in layers called tax brackets. As your income goes up, the tax rate on the next layer of income is higher. When your income jumps to a higher tax bracket, you don't pay the higher rate on your entire income.
How do I calculate my total federal income tax? ›
How Income Taxes Are Calculated
- First, we calculate your adjusted gross income (AGI) by taking your total household income and reducing it by certain items such as contributions to your 401(k).
- Next, from AGI we subtract exemptions and deductions (either itemized or standard) to get your taxable income.
For 2022, the federal income tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Regardless of your situation, you'll need to complete a W-4 and submit it to your employer.
How do employers calculate federal tax withholding? ›
Federal income tax withholding is calculated using either the wage bracket or percentage method. Employers calculate the amount of tax to withhold based on the information provided in Form W-4, employee gross pay, and IRS tax withholding tables.
How much taxes are taken out of a $1200 paycheck? ›
However , on average , approximately 22 % of a $ 1200 paycheck would be deducted for taxes , which amounts to $ 264 . This includes federal income tax , state income tax , and FICA taxes ( Social Security and Medicare ) .
Income taxes are collected through withholding (or deducting) money from your paycheck. Employers deduct the money and send it to the government. People who are self-employed, such as entrepreneurs or ride-share drivers, also have to pay income taxes, but those taxes aren't withheld from their earnings.
How is taxable income determined? ›
Arriving at Taxable Income
For individual filers, calculating federal taxable income starts by taking all income minus “above the line” deductions and exemptions, like certain retirement plan contributions, higher education expenses, student loan interest, and alimony payments, among others.
How to decrease federal income tax? ›
What Can I Write Off on My Taxes?
- Alimony payments.
- Business use of your car.
- Business use of your home.
- Money you put in an IRA.
- Money contributed to a health savings account.
- Penalties on early withdrawals from savings.
- Student loan interest.
- Teacher expenses.
The amount withheld depends on:
- The amount of income earned and.
- Three types of information an employee gives to their employer on Form W–4, Employee's Withholding Allowance Certificate: Filing status: Either the single rate or the lower married rate.
The taxable wage is determined by subtracting any non-taxable wages, deductions, and employer-provided benefits from the gross wage.
How much federal tax should I pay on $50,000? ›
If you are single and a wage earner with an annual salary of $50,000, your federal income tax liability will be approximately $5700. Social security and medicare tax will be approximately $3,800. Depending on your state, additional taxes my apply.
How do I calculate my taxable income? ›
Simply stated, it's three steps. You'll need to know your filing status, add up all of your sources of income and then subtract any deductions to find your taxable income amount.
