Understanding Federal Income Tax Brackets

Audrey M. Jones
Contributor: Wendy Connick
US tax form

Federal income tax brackets prescribe the amount of an individual's tax liability based on their income. Established by the Internal Revenue Service (IRS), income tax brackets range from ten to 39.6 percent. The United States tax system is a progressive one; the more a taxpayer earns in a given year, the more tax liability he or she incurs.

Federal Income Tax Brackets Explained

A bracket is the tax percentage an individual pays on his or her income. There are seven levels: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.

  • Each bracket applies to a different income level. Income levels for tax bracket purposes change depending on whether the taxpayer files as a single person, jointly with their spouse or as the head of household. 'Single' includes married taxpayers filing separately.
  • Brackets are published each year. Specific brackets that define earning ranges and their corresponding tax percentage are available online and are updated each year as they become available. They typically change each year, by approximately $500 to account for inflation.

It is important to check the IRS website and any filing documents every year prior to filing a return, or you could end up paying too much or too little in taxes.

What a Bracket Means

A bracket does not identify the percentage of a taxpayer's income they will pay to the IRS. Rather, it identifies the tax liability for each dollar over the bracket maximum that the taxpayer owes to the IRS. This liability is in addition to the 10% that the IRS charges on the first $9,275 of every taxpayer's income.

Example

A single taxpayer earning $30,000 a year does not pay 15 percent of their income ($4,500), but rather 15% of every dollar over $9,275, meaning $20,725, to the IRS. In this example, the taxpayer's liability on the $20,725 that their income exceeds the first bracket is $3,109, according to the IRS. This would be in addition to the $928 liability for the first $9,275 of their income, charged at a 10 percent tax rate, resulting in a total of $4,037 in tax liability.

Determining Your Bracket

To determine what bracket applies to you, you must first calculate your total income earned in a year. IRS publication 525, titled "Taxable and Nontaxable Income," lists the specifics of what the agency considers income. As defined by the IRS, "income" includes all wages and salaries, sick and vacation day payments, bonuses, royalties, interest and commissions. Essentially, your income is determined by adding together all earnings.

Second, you must identify the tax bracket that completely includes all of your income; this is your tax bracket. The IRS Tax Computation Worksheet can help you determine how much tax you'll need to pay based on your filing status and specific income for the year.

Your Tax Liability

Federal income tax brackets and their accompanying calculations can be confusing; carefully check your work on your tax form when determining the amount of money you owe to ensure that you are not overpaying. Additionally, remember that you can reduce your liability by claiming tax credits.

Understanding Federal Income Tax Brackets