Tax Brackets in the US: What You Need to Know
The US tax system is complex, but understanding tax brackets is a key step in figuring out your financial obligations. In this article, we’ll break down what tax brackets are, how they work and what the current tax brackets are in the US.
What are Tax Brackets?
Tax brackets are the rates at which you’re taxed on your net income. In the US, each tax bracket is determined by your filing status, whether your single, married filing jointly or separately, or head of household.
The primary purpose of tax brackets is to provide a progressive tax system between the different earning classes. In other words, someone in the highest tax bracket pays a higher tax rate on their income than someone in the lowest tax bracket pays on their income. The higher tax rate on higher incomes helps to offset some of the inequalities in income and wealth.
How do Tax Brackets Work?
Tax brackets work on a sliding scale. That is, the more you make, the more you’re taxed. The highest tax bracket is charged a different rate than that the lowest tax bracket is charge. Each tax rate is applied to a specific range of income. However, not everyone pays the highest rate on all of their income – only the portion of your income that falls into the highest bracket is subject to that rate.
For example, if you’re married filing jointly with a taxable income of $105,400, you’ll be in the 24% tax bracket. That means the first $19,400 of your taxable income will be taxed at the 12% rate, the portion of your income between $19,401 and $78,950 will be taxed at the 22% rate, and the portion above $78,950 – $105,400 – will be taxed at the 24% rate.
Which Tax Brackets Currently Apply in the US?
The US currently has seven different tax brackets for the tax year 2019, for both individuals and couples filing jointly. They are:
• 10%: This bracket applies to taxable income of up to $19,400 for individuals and up to $78,950 for married filing jointly.
• 12%: This bracket applies to taxable income of $19,401 to $78,950 for individuals and from $78,951 to $168,400 for married filing jointly.
• 22%: This bracket applies to taxable income of $78,951 to $168,400 for individuals and from $168,401 to $321,450 for married filing jointly.
• 24%: This bracket applies to taxable income of $168,401 to $321,450 for individuals and from $321,451 to $408,200 for married filing jointly.
• 32%: This bracket applies to taxable income of $321,451 to $408,200 for individuals and from $408,201 to $612,350 for married filing jointly.
• 35%: This bracket applies to taxable income of $408,201 to $612,350 for individuals and from $612,351 to $960,700 for married filing jointly.
• 37%: This bracket applies to taxable income of $612,351 and above for individuals and $960,701 and above for married filing jointly.
Conclusion
Tax brackets are an important part of the US tax system. Knowing the current tax brackets in the US is helpful in understanding your tax obligations and filing your taxes correctly. It’s also essential to understand that if you’re in the highest tax bracket, you only pay the highest rate on the portion of your income that falls into that bracket – all other income is taxed at lower rates.