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
The federal income tax system is progressive, which means that tax rates go up the greater taxable income you have. The term "tax bracket" refers to the income ranges with differing tax rates applied to each range.
How is federal tax income calculated? ›
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.
How do tax brackets work for dummies? ›
Tax brackets specify the tax rate you will pay on each portion of your taxable income. Your tax rate typically increases as your taxable income increases. The overall effect is that higher-income taxpayers usually pay a higher rate of income tax than lower-income taxpayers.
How is federal effective tax rate calculated? ›
You can easily calculate your effective tax rate as an individual taxpayer. Do this by dividing your total tax by your taxable income. To get the rate, multiply by 100. You can find your total tax on line 24 of Form 1040 and your taxable income on line 15 of the form.
How do I know my federal income tax rate? ›
The easiest way to figure out your marginal tax rate is to look at the federal tax brackets and see in which bracket your taxable income ends. This represents your marginal tax rate. If you need help determining your tax bracket, visit TurboTax's Tax Bracket Calculator.
Who pays what percentage of federal income taxes? ›
High-Income Taxpayers Paid the Majority of Federal Income Taxes. In 2021, the bottom half of taxpayers earned 10.4 percent of total AGI and paid 2.3 percent of all federal individual income taxes. The top 1 percent earned 26.3 percent of total AGI and paid 45.8 percent of all federal income taxes.
How do you calculate federal total tax? ›
How to calculate your tax liability. Your taxable income minus your tax deductions equals your gross tax liability. Gross tax liability minus any tax credits you're eligible for equals your total income tax liability.
What is the formula for the tax rate? ›
This is the formula you need to use to calculate your effective tax rate: Effective Tax Rate = Total Tax ÷ Taxable Income.
What percentage of my income should I pay in federal taxes? ›
The federal income tax rates remain unchanged for the 2024 tax year at 10%, 12%, 22%, 24%, 32%, 35% and 37%. The income thresholds for each bracket, though, are adjusted slightly every year for inflation.
How do taxes work for dummies? ›
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.
Federal Income Tax (FIT) is calculated using the information from an employee's completed W-4, their taxable wages, and their pay frequency. Based on Publication 15-T (2024), Federal Income Tax Withholding Methods, you can use either the Wage Bracket Method or the Percentage Method to calculate FIT.
Are tax brackets based on gross or net income? ›
Taxable income starts with gross income, and 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.
What percentage of my paycheck is withheld for federal tax? ›
Federal income tax rates range from 10% up to a top marginal rate of 37%. The U.S. real median household income (adjusted for inflation) in 2022 was $74,580.
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.
What is the average tax return for a single person making $60,000? ›
If you make $60,000 a year living in the region of California, USA, you will be taxed $13,653. That means that your net pay will be $46,347 per year, or $3,862 per month.
How much federal tax do I pay on $80,000? ›
If you make $80,000 a year living in the region of California, USA, you will be taxed $21,763. That means that your net pay will be $58,237 per year, or $4,853 per month.
How is federal tax calculated per paycheck? ›
Federal Income Tax (FIT) is calculated using the information from an employee's completed W-4, their taxable wages, and their pay frequency. Based on Publication 15-T (2024), Federal Income Tax Withholding Methods, you can use either the Wage Bracket Method or the Percentage Method to calculate FIT.
What percentage of your paycheck goes to federal income tax? ›
The U.S. currently has seven federal income tax brackets, with rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%. If you're one of the lucky few to earn enough to fall into the 37% bracket, that doesn't mean that the entirety of your taxable income will be subject to a 37% tax. Instead, 37% is your top marginal tax rate.
Are tax brackets based on gross income? ›
Keep in mind that the income ranges are different for each filing status, so it's important to identify which applies to you. Finally, remember that the tax bracket you fall into is based on your taxable income, not your gross income.
