Understanding federal tax brackets

Every adult in the United States falls into one of seven federal tax brackets. Your tax bracket is determined by your total annual income level. However, you will likely only pay the tax rate on a portion of your income.

As a general rule, individuals with higher incomes pay more federal taxes. In contrast, those with lower incomes will owe less. Other factors can also contribute to your tax bracket, including your marital status and how you choose to file.

There may be ways to lower your annual taxes, regardless of your federal income tax bracket. In this guide, we’ll share everything you need to know to file your federal taxes with confidence. Continue reading to learn how tax brackets impact the amount of taxes you may owe.

The United States has a progressive tax system in which individuals with higher incomes pay a larger percentage in taxes than those with smaller incomes, to fund the United States government while limiting individual financial strain.

Each tax bracket is an income range defined by the IRS. Tax rates fall into a range between 10% and 37%. As your annual income increases, you will move into a higher federal tax bracket. If you retire or begin earning less income, you may move into a lower tax bracket.

The percentage of taxes owed may apply to different portions of your taxable income, depending on your filing status. A common misconception is that a single rate applies to your entire income. However, only the income within each bracket range is taxed at the corresponding rate. This is known as your effective tax rate.

There are currently seven federal income tax brackets, as defined by the IRS. They are:

• 10%
• 12%
• 22%
• 24%
• 32%
• 35%
• 37%

The income ranges that fall into each bracket are determined by your filing status. Below are the US federal tax brackets for 2024 per the IRS:

Based on the above information, you can calculate the amount of taxes you owe during the 2024-2025 fiscal year. Let’s imagine you’re filing as single and earned an income of $60,000 this year.

• The first $11,600 would be taxed at a rate of 10% ($11,600 × 0.10 = $1,160)
• The next $35,550 ($47,150 - $11,600) would be taxed at a rate of 12% ($35,550 × 0.12 = $4,266)
• The remaining $12,850 ($60,000 - $47,150) would be taxed at a rate of 22% ($12,850 × 0.22 = $2,827)
• Thus, in this illustrative example, your total tax liability would be $8,253 ($1,160 (10% bracket) + $4,266 (12% bracket) + $2,827 (22% bracket)
• The above example assumes taxable income after deductions. Actual tax liability can vary based on your specific deductions, credits, and other factors.

You can also use this information to identify your marginal tax rate. This is the rate paid on the last dollar of your taxable income. In other words, it’s the highest bracket that your income falls into. In the above example, your marginal tax rate would be 22%.

Your federal tax rate bracket is determined by your income. Still, there are ways to reduce it legally and efficiently. Some ways to potentially reduce your federal income taxes include:

• Contribute to a tax-deductible retirement account. The contribution limit for 2024 is $23,000 or $30,000 if you’re 50 or older.
• Contribute to an HSA. Those with high-deductible health plans can contribute to an HSA. Contributions are tax-deductible, and withdrawals for qualified expenses are tax-free.
• Use FSAs. Contributions to FSAs are made with pre-tax dollars, reducing your taxable income. This may be enough to put you into a lower tax bracket.
• Claim your tax credits. Child tax credits, education credits, and earned income tax credits can significantly reduce your taxable income dollar for dollar.
• Itemize your deductions. If your deductions exceed the standard amount, be sure to itemize them to receive more than the standard deduction.
• Invest in tax-advantaged accounts. 529 education accounts and municipal bonds may not be taxable at the federal level. They may save you money on your state taxes, too, depending on the bond’s state of origin.
• Deduct student loan interest. Depending on your income level, you can often deduct up to $2,500 of student loan interest, whether or not you choose to itemize.
• Make and document charitable contributions. If you itemize your deductions, you can deduct donations to qualifying charities.
• Use the most beneficial filing status each year. Your status can impact your tax rates and deductions for the year. Always review your filing status annually to ensure you are in the most beneficial position.

Understanding federal income tax brackets is your first step toward making smarter financial decisions. Learn even more about taxes with our comprehensive tax guides.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.