With the start of a new year, it’s important to be aware of any changes to federal income tax brackets that may affect you and your family. For 2022 and 2023, the Internal Revenue Service (IRS) has released its updated income tax brackets for both single and married taxpayers filing jointly.
Knowing these rates can help you plan ahead for upcoming taxes so you can better prepare yourself financially. Keep reading to take a closer look at what’s changed for this tax year.
What are Income Tax Brackets?
A tax bracket is the range of income that is taxed at a certain rate, and it also largely determines how much money is withheld from your paycheck. The federal government decides which bracket applies to you by looking at your taxable income, which is your total income minus any tax deductions or tax credits you qualify for.
Federal income tax brackets are usually presented in tabular form, making it easy for most taxpayers to see how they work at a glance. And once you figure out your filing status, single, married, head of household, etc., you can use them to determine your tax rate and taxable income the same way the government does when you file your taxes with the internal revenue service.
You can also look at state tax websites for more information as well as small business tax deductions coming your way.
After reading, check out how ClearValue Tax breaks down tax brackets and rates for beginners:
Federal Income Tax Brackets 2022 (Due April 2023)
The seven federal income tax brackets for the 2022 tax year are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Capital gains tax rates are different. Your tax brackets and rates are based on your filing status as well as your taxable ordinary income.
Use the tables below to calculate your tax bill.
Single Filers
| Applicable Tax Rate | Taxable Income Bracket Range | Tax Amount You Must Pay |
|---|---|---|
| 0.1 | $0 to $10,275 | 10% of taxable income |
| 0.12 | $10,276 to $41,775 | $1,02750 + 12% of the amount over $10,275 |
| 0.22 | $41,776 to $89,075 | $4,80750 + 22% of the amount over $41,775 |
| 0.24 | $89,076 to $170,050 | $15,21350 + 24% of the amount over $89,075 |
| 0.32 | $170,051 to $215,950 | $34,64750 + 32% of the amount over $170,050 |
| 0.35 | $215,951 to $539,900 | $49,33550 + 35% of the amount over $215,950 |
| 0.37 | $539,901 or more | $162,718 + 37% of the amount over $539,900 |
Married (Filing Jointly)
| Applicable Tax Rate | Taxable Income Bracket Range | Tax Amount You Must Pay |
|---|---|---|
| 10% | $0 to $20,550 | 10% of taxable income |
| 12% | $20,551 to $83,550 | $2,055 + 12% of the amount over $20,550 |
| 22% | $83,551 to $178,150 | $9,615 + 22% of the amount over $83,550 |
| 24% | $178,151 to $340,100 | $30,427 + 24% of the amount over $178,150 |
| 32% | $340,101 to $431,900 | $69,295 + 32% of the amount over $340,100 |
| 35% | $431,901 to $647,850 | $98,671 + 35% of the amount over $431,900 |
| 37% | $647,851 or more | $174,25350 + 37% of the amount over $647,850 |
Married (Filing Separately)
| Applicable Tax Rate | Taxable Income Bracket Range | Tax Amount You Must Pay |
|---|---|---|
| 10% | $0 to $10,275 | 10% of taxable income |
| 12% | $10,276 to $41,775 | $1,02750 + 12% of the amount over $10,275 |
| 22% | $41,776 to $89,075 | $4,80750 + 22% of the amount over $41,775 |
| 24% | $89,076 to $170,050 | $15,21350 + 24% of the amount over $89,075 |
| 32% | $170,051 to $215,950 | $34,64750 + 32% of the amount over $170,050 |
| 35% | $215,951 to $323,925 | $49,33550 + 35% of the amount over $215,950 |
| 37% | $323,926 or more | $87,12675 + 37% of the amount over $323,925 |
Head of Household
| Applicable Tax Rate | Taxable Income Bracket Range | Tax Amount You Must Pay |
|---|---|---|
| 10% | $0 to $14,650 | 10% of taxable income |
| 12% | $14,651 to $55,900 | $1,465 + 12% of the amount over $14,650 |
| 22% | $55,901 to $89,050 | $6,415 + 22% of the amount over $55,900 |
| 24% | $89,051 to $170,050 | $13,708 + 24% of the amount over $89,050 |
| 32% | $170,051 to $215,950 | $33,148 + 32% of the amount over $170,050 |
| 35% | $215,951 to $539,900 | $47,836 + 35% of the amount over $215,950 |
| 37% | $539,901 or more | $161,21850 + 37% of the amount over $539,900 |
2023 Federal Income Tax Brackets (Due April 2024)
If you want to look ahead to the 2023 tax year and new the income thresholds, check out the tables below that show the tax brackets for single taxpayers, married filing jointly, married filing separately, and head of household filers. If you are looking ahead make sure to not fall for tax extension myths that are out there and could get you in hot water.
While the effective tax rate remains the same for each bracket, the dollar amounts are increased. These tables containing the seven federal tax brackets will help you calculate your future tax bill.
Single Filers
| Applicable Tax Rate | Taxable Income Bracket Range | Tax Amount You Must Pay |
|---|---|---|
| 10% | $0 to $11,000 | 10% of taxable income |
| 12% | $11,001 to $44,725 | $1,100 + 12% of the amount over $11,000 |
| 22% | $44,726 to $95,375 | $5,147 + 22% of the amount over $44,725 |
| 24% | $95,376 to $182,100 | $16,290 + 24% of the amount over $95,375 |
| 32% | $182,101 to $231,250 | $37,104 + 32% of the amount over $182,100 |
| 35% | $231,251 to $578,125 | $52,832 + 35% of the amount over $231,250 |
| 37% | $578,126 or more | $174,23825 + 37% of the amount over $578,125 |
Married Couples Filing Jointly
| Applicable Tax Rate | Taxable Income Bracket Range | Tax Amount You Must Pay |
|---|---|---|
| 10% | $0 to $22,000 | 10% of taxable income |
| 12% | $22,001 to $89,450 | $2,200 + 12% of the amount over $22,000 |
| 22% | $89,451 to $190,750 | $10,294 + 22% of the amount over $89,450 |
| 24% | $190,751 to $364,200 | $32,580 + 24% of the amount over $190,750 |
| 32% | $364,201 to $462,500 | $74,208 + 32% of the amount over $364,200 |
| 35% | $462,501 to $693,750 | $105,664 + 35% of the amount over $462,500 |
| 37% | $693,751 or more | $186,60150 + 37% of the amount over $693,750 |
Married (Filing Separately)
| Applicable Tax Rate | Taxable Income Bracket Range | Tax Amount You Must Pay |
|---|---|---|
| 10% | $0 to $11,000 | 10% of taxable income |
| 12% | $11,001 to $44,725 | $1,100 + 12% of the amount over $11,000 |
| 22% | $44,726 to $95,375 | $5,147 + 22% of the amount over $44,725 |
| 24% | $95,376 to $182,100 | $16,290 + 24% of the amount over $95,375 |
| 32% | $182,101 to $231,250 | $37,104 + 32% of the amount over $182,100 |
| 35% | $231,251 to $346,875 | $52,832 + 35% of the amount over $231,250 |
| 37% | $346,876 or more | $93,30075 + 37% of the amount over $346,875 |
Head of Household
| Applicable Tax Rate | Taxable Income Bracket Range | Tax Amount You Must Pay |
|---|---|---|
| 10% | $0 to $15,700 | 10% of taxable income |
| 12% | $15,701 to $59,850 | $1,570 + 12% of the amount over $15,700 |
| 22% | $59,851 to $95,350 | $6,868 + 22% of the amount over $59,850 |
| 24% | $95,351 to $182,100 | $14,678 + 24% of the amount over $95,350 |
| 32% | $182,101 to $231,250 | $35,498 + 32% of the amount over $182,100 |
| 35% | $231,251 to $578,100 | $51,226 + 35% of the amount over $231,250 |
| 37% | $578,101 or more | $172,62350 + 37% of the amount over $578,100 |
How Federal Income Tax Rates Work
Understanding how federal income tax rates work is an important part of managing personal finances. The U.S. operates a progressive tax system where earnings above certain thresholds are taxed at higher rates, which helps to redistribute the nation’s wealth and support essential government services.
Taxpayers must understand what their marginal tax rate is, how their taxes are calculated, and the payment options available to them in order to pay the accurate amount of taxes owed each year.
Marginal Tax Rate System
Marginal tax rates are based on a series of brackets with each corresponding to a specific rate. Taxpayers will fall into one of these brackets depending on their income and filing status, and the amount they owe in taxes will be calculated using the appropriate bracket’s rate.
Factors Determining Which Bracket You Fall In
There are a few factors that determine which tax bracket you fall into, including your filing status, annual income, and the number of deductions you take.
Your yearly income is the main determining factor for your marginal tax rate; the more money you make, the higher rate you will be taxed at. The standard deduction given to filers may reduce their total taxable income, allowing them to fall into a lower marginal tax rate. It’s also important to consider state taxes alongside federal taxes when calculating what is owed.
Calculating Taxes Owed
Calculating taxes owed is a simple process that involves taking your adjusted gross income (AGI), subtracting any deductions and credits, and then calculating the amount due at your marginal tax rate. Standard and itemized deductions along with credits are important and can help keep you from being pushed into a higher tax bracket.
Once you’ve determined the amount of taxable income, you can look up the applicable federal and state tax rates for the applicable tax year and calculate how much you owe in taxes.
You may also need to consider any additional taxes or fees required by local governments when you generally pay tax.
For a single filer with $40,000 taxable income in the 12% tax bracket, taxes owed are calculated as follows:
- for income up to $10,275, 10% of that amount is taxed
- for the remaining $29,725 (from $10,276 to $41,775), 12% of that amount is taxed.
In total, this would mean that the person owes taxes of ($10,275 × 10%) + ($29,725 x 12%) = $4,594.50.
Examining Withholding Options to Reduce the Burden at Filing Time
Reducing the amount of taxes due at filing time can be achieved by adjusting the amount of tax withholding from each paycheck. When a W-4 form is completed and submitted to an employer, it allows for the selection of the desired number of allowances.
By selecting a higher number, more money is left in each paycheck but that also increases tax liability when filing a return. Having larger withholdings throughout the year can reduce refund amounts and help to avoid owing at filing time. Individuals may also opt to use other methods such as estimated payments or retirement plan contributions to lower their tax liabilities.
It is important to consider these options carefully before making any decisions in order to make sure that there is enough money set aside throughout the year to cover owed taxes at filing time.
Tips to Get Your Business into a Lower Tax Bracket
Owning a business and turning a healthy profit can be sort of a catch-22 situation. On the one hand, you’re doing well and should be proud of your accomplishments. On the other hand, you now have to pay taxes on all that income. Fortunately, there are ways to get your company into a lower tax bracket, so you pay less federal income taxes.
This includes being aware of standard deduction for small business, as well as the qualified business income deduction. The standard deduction 2022 varies based on your filing status. And the amount is set to increase in 2023. Here are a few additional tips to help during tax time:
- Hire a financial professional or accountant: Even if you’re the only one working in your business, it’s important to get an adviser involved. A professional can help you identify more deductions that could lower taxes and then plan around them accordingly.
- Look into retirement planning: Retirement accounts like IRAs or 401Ks can be great ways for small businesses to save money on their tax bill each year.
- Keep good records: Stay on top of all income and expenses related to your business. This simple act will make tax time much easier and could save you money on penalties for not having proper documentation. Find the best tax software for maintaining your financial records and calculating your taxable income.
- Purchase assets: If you’re in the market for new equipment, consider buying it at the end of a tax year or the beginning of a new one. Doing this will allow your company to take advantage of depreciation and lower its taxable income even more.
- Time income and expenses strategically: Known as “accelerating expenses and deferring income,” this technique is a great way to get your company into the lower tax brackets. For example, let’s say you’re running an e-commerce site that sells its products at the end of each year. If you defer income until next year by delivering late or sending out invoices after January 31st, it will give more time for expenses like shipping and advertising to be deducted from this year’s taxable income.
What is the Difference Between Federal Tax Brackets and Tax Rates?
Although they appear to be similar and are used to calculate the total income tax owed, tax brackets and tax rates differ.
Here’s how: The tax rate is the percentage at which your income is taxed. On the other hand, a tax bracket has differing tax rates like 10%, 12%, or 32%, which is also known as the marginal rate.
Will the 2023 tax brackets be affected by inflation?
Yes, the 2023 tax brackets will be adjusted for inflation. Every year the IRS assesses changes in the costs of living and adjusts previously-set tax brackets accordingly to compensate for inflation.
This is done to ensure that taxpayers are not paying more than their fair share of taxes due to higher prices brought up by inflation in a certain year.
What is a marginal tax rate?
A marginal tax rate is the rate of taxation on an additional dollar of income earned. It’s calculated by dividing the amount of additional taxes due on the extra dollar by the extra dollar itself. For example, if a person earns an extra $100 and has to pay an additional $25 in taxes, their marginal tax rate would be 25%.
Marginal rates are based on income levels and are used to determine how much money people owe in taxes after filing returns each year.
What is taxable income?
Taxable income is the portion of your earnings and other forms of income that is subject to taxation by the government. It serves as the basis for calculating the amount of income tax you owe to the federal and state authorities. Understanding what constitutes taxable income is essential for accurate tax filing and ensuring compliance with tax laws.
Here are some key points to consider regarding taxable income:
- Types of Income: Taxable income encompasses various sources of earnings and financial gains, including:
- Wages and salaries earned from employment.
- Bonuses and tips received.
- Self-employment income from running a business or working as an independent contractor.
- Alimony payments received from a former spouse.
- Capital gains from the sale of assets like stocks, real estate, or other investments.
- Rental income from properties you own.
- Interest and dividends earned from savings accounts, investments, and stocks.
- Deductions and Adjustments: Certain deductions and adjustments can help reduce your taxable income, which in turn lowers your overall tax liability. Common deductions include:
- Mortgage interest payments on qualifying home loans.
- Charitable donations made to eligible nonprofit organizations.
- Contributions to retirement accounts like Traditional IRAs or 401(k)s.
- Student loan interest paid.
- Qualified medical expenses that exceed a certain threshold.
- State and local taxes paid (limited to a certain amount).
- Taxable Income vs. Gross Income: It’s essential to distinguish between taxable income and gross income. Gross income is your total earnings before any deductions, adjustments, or exemptions are taken into account. Taxable income, on the other hand, is the net income remaining after allowable deductions and adjustments have been applied.
- Tax Brackets and Rates: Once your taxable income is determined, it falls into specific tax brackets, and the corresponding tax rates are applied accordingly. Different tax brackets have different tax rates, and as your income increases, you may move into a higher tax bracket, resulting in a higher tax rate on the additional income earned.
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