In the US, income taxes are calculated based on progressive marginal taxes. What does that mean? Progressive taxes mean that you pay more in taxes as you earn more money. So as you make more money, you will pay higher tax rates.
But those higher tax rates are not paid on your entire income. Tax rates are paid on the “marginal” or next dollar earned. This means that you pay a certain tax rate on every dollar until you reach a certain income threshold, then you pay a different amount of taxes on your earnings in the next income threshold, and so on.
In theory, you pay a different amount of income taxes on the “different dollars” that you earn. If you make $100,000 over the course of a year, you will pay a lower tax rate on the income you earn in January than the income you earn in December.
In practice, the taxes withheld from your paycheck are based on how much your employer thinks you will earn that year. If you end up earning a different amount of money – maybe you take a few months of unpaid leave, maybe you get a big raise mid-year, maybe you quit your job – then your withholdings may not be for the correct amount, which will be corrected when you file your annual tax return.
US Federal Income Tax Brackets
Below are the 2022 US federal income tax brackets for single filers:
| Tax rate | Taxable income bracket | Tax owed |
| 10% | $0 to $10,275 | 10% of taxable income |
| 12% | $10,276 to $41,775 | $1,027.50 plus 12% of the amount over $10,275 |
| 22% | $41,776 to $89,075 | $4,807.50 plus 22% of the amount over $41,775 |
| 24% | $89,076 to $170,050 | $15,213.50 plus 24% of the amount over $89,075 |
| 32% | $170,051 to $215,950 | $34,647.50 plus 32% of the amount over $170,050 |
| 35% | $215,951 to $539,900 | $49,335.50 plus 35% of the amount over $215,950 |
| 37% | $539,901 or more | $162,718 plus 37% of the amount over $539,900 |
These income brackets vary based on whether the taxpayer is filing as an individual or with a spouse / partner:
- Single
- Married, filing jointly
- Married, filing separately
- Head of household (unmarried and supporting dependents)
Example: Federal income tax for $50,000 earner
To use a round number, let’s say that you earn $50,000 in 2022. The federal tax brackets mean that you will owe income tax of 10% for the first $10,275, then 12% for the next $31,500, then 22% for the next $8,225.
When you take the total taxes you paid and the total taxes you earned, your average tax rate is ~13.2%. However, your marginal tax rate is 22% – if you earn another dollar, you will owe 22% of that dollar in taxes to the federal government.
| Tax rate | Income earned | Tax owed |
| 10% | $0 to $10,275 | $1,028 |
| 12% | $10,276 to $41,775 | $3,780 |
| 22% | $41,776 to $50,000 | $1,810 |
| Average: ~13.2%Marginal: 22% | Total: $50,000 | Total: $6,618 |
Example: Federal income tax for $100,000 earner
To extend this example, let’s say that you get a big raise mid-year – congrats! You now earn $100,000 in 2022. The federal tax brackets mean that you will owe income tax of 10% for the first $10,275, then 12% for the next $31,500, then 22% for the next $47,300, then 24% for the next $10,925.
Now, your average and marginal income tax rates have both increased. On average, you now pay ~17.8% in taxes and the next dollar you earn will be taxed at 24%.
| Tax rate | Income earned | Tax owed |
| 10% | $0 to $10,275 | $1,028 |
| 12% | $10,276 to $41,775 | $3,780 |
| 22% | $41,776 to $89,075 | $10,406 |
| 24% | $89,076 to $100,000 | $2,622 |
| Average: ~17.8%Marginal: 22% | Total: $100,000 | Total: $17,836 |
This brings us to the big misconception – if you make more money, you will NOT owe higher taxes on the dollars you already earned in lower tax brackets. The higher taxes are paid on marginal dollars. So if you currently earn $41,774 per year and are then get a raise that will push you up into the next income bracket, you will only pay higher marginal taxes on the dollars above the $41,775 tax threshold.
Additional Details on Income Taxes
Yes – there are two main important items that we have not discussed:
- We have only talked about federal income taxes.
You may also owe income taxes to state and local governments. This varies by location (e.g., Florida does not have state income tax), so you should check based on where you live.
Income taxes at a state and local level work in the same manner as at the federal level. The income brackets and tax rates will vary, but the process and calculations are the same.
Note that you may owe income taxes to states where you do not live if you worked outside your home state during the year. This gets complicated quickly, so you should consult a tax professional with any questions.
Income brackets and tax rates can change – sometimes each year.
Income brackets will change in response to changing cost of living, or inflation. Every year, the IRS and state / local tax authorities will publish updated tax brackets to determine what income levels are subject to each tax rate. The idea behind this is that tax rates were set by Congress and state legislatures based on purchasing power, so income brackets should be adjusted to reflect changes in the the real value of that money (i.e., how much you can buy in terms of goods and services).
Tax rates are determined by Congress (for federal taxes) and state legislatures (for state taxes). These can change with new legislation, which tends to happen every few years.
