People often use the term income tax bracket to refer generally to whether someone has a high or low income, but you can actually determine what your income tax bracket is. Tax brackets refer to your marginal tax rate, meaning the amount of tax that you'll pay on an additional dollar of earnings.
You can find out your income tax bracket using the 1040 tax form or estimate it based on your income.
Income Brackets and Marginal Tax Rates
The United States federal tax system is what's called a progressive tax system. This isn't a political term but a term from economics meaning that you generally pay a higher share of your income as taxes as your income goes up.
When you say someone is in the 22 percent tax bracket, it doesn't mean that all of his or her income is taxed at 22 percent. Rather, it means that his or her marginal tax rate is 22 percent, meaning an additional dollar of income will be charged at that rate. In reality, you actually pay less than your marginal tax rate unless you are in the lowest tax bracket, since some of your income will be taxed at the lower brackets you pass through.
Using an Example
For example, if you make $90,000 per year in taxable income, that puts you in the 24 percent tax bracket for tax year 2018. But the taxes on $90,000 are actually lower than 24 percent, since only the portion of your income greater than $82,500 is taxed at that rate and the rest of your income is taxed at lower rates.
You can look up your tax bracket using charts available from the Internal Revenue Service and third-party websites and newspapers, but remember that income brackets only work based on taxable income, so you will want to subtract out any deductions from your income to figure out which bracket you are in. This can be easiest to do when you actually do your taxes, since you will be doing the computation anyway.
Capital Gains and State Taxes
Long-term capital gains are taxed according to their own set of brackets, which tax marginal capital gains at 0 percent, 15 percent or 20 percent rather than your ordinary income rate, though the principal is the same.
State taxes also have their own sets of tax brackets if they use a progressive tax system. Some states use what's called a flat tax, where all income is taxed at the same percentage rate.
2018 Tax Brackets
In general, marginal tax rates are going down as of tax year 2018.
If you make $9,525 or less, you're in the 10 percent tax bracket. Additional income from that point up to $38,700 is taxed at 12 percent. From there, income up to $82,500 is taxed at 22 percent. Then, income up to $157,500 is taxed at 24 percent. Additional income to $200,000 is taxed at 32 percent. Income from $200,001 to $500,000 is taxed at 35 percent, and anything above $500,000 is taxed at 37 percent.
2017 Tax Brackets
For tax year 2017, there is a different set of seven tax brackets.
Income up to $9,325 is taxed at 10 percent. From there to $37,950, income is taxed at 15 percent. From $37,950 to $91,900, income is taxed at 25 percent. Up to $191,650, additional income is taxed at 28 percent. Additional income up to $416,700 is taxed at 33 percent. Then, income from $416,700 to $418,400 is taxed at 35 percent, and additional income beyond that is taxed at 39.6 percent.
- IRS: Form 1040 Instructions
- What is the difference between marginal and average tax rates? | Tax Policy Center
- Forbes: New: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More
- NerdWallet: 2018 Capital Gains Tax Rates — and How to Avoid a Big Bill
- Illinois Public Media: Illinois Issues: Why Does The State Have A Flat Income Tax?
- Tax Foundation: 2017 Tax Brackets
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.