# What Are Tax Brackets and Marginal Tax Rates?

March 26, 2024 Beginner
What are the tax brackets and how do marginal tax brackets work? Find out about tax rates as we head into income tax season.

Do you know what the federal ordinary income tax brackets are and the tax rates that apply to you? If you’re unsure, you’re not alone. Many people are under the impression that the more they earn, the higher their tax rate will be on all their income. While it may be true that your tax rate increases with higher income, it does not mean all your income will be taxed at the higher rate.

Sound complicated? Fortunately, it’s not as bad as it may seem at first glance. Let’s answer a few of the most common questions regarding tax rates and tax brackets.

## What is a tax rate?

A tax rate is simply the percentage at which your income is taxed. For example, if you were single and had only \$9,000 of taxable income, you'd fall into the 10% federal tax bracket. To determine your tax, simply multiply the \$9,000 by 10% to get your tax due of \$900.

So far, so good. However, there’s another important thing you need to know—the United States has a progressive tax system. In a progressive tax system, the tax rate increases as your taxable income increases; however, only the income that passes into the next higher tax bracket is taxed at a higher tax rate.

## What is a tax bracket?

Currently, there are seven federal tax rates that range from 10% to 37%. Each of those tax rates only apply to certain levels of taxable income, known as a tax bracket. As your taxable income increases, it crosses from one tax bracket to the next higher tax bracket, where a new tax rate applies. Even as your income moves into a higher tax bracket, the income that fell into a lower tax bracket will still be taxed at those lower tax rates.

The tax brackets that apply to you will depend not only on how much taxable income you have but also on your filing status (which includes single filer, married filing jointly, married filing separately, or head of household). The table below shows the tax brackets and corresponding tax rates for each filing status.

2024 federal ordinary income tax rates and brackets
• Tax rate
• Tax bracket by filing status
• Tax bracket by filing status
• Tax bracket by filing status
• Tax bracket by filing status
• Tax rate
• Tax bracket by filing status
Single
• Tax bracket by filing status
Married filing jointly
• Tax bracket by filing status
Married filing separately
• Tax bracket by filing status
• Tax rate
10%
• Tax bracket by filing status
\$0 to \$11,600
• Tax bracket by filing status
\$0 to \$23,200
• Tax bracket by filing status
\$0 to \$11,600
• Tax bracket by filing status
\$0 to \$16,550
• Tax rate
12%
• Tax bracket by filing status
\$11,601 to \$47,150
• Tax bracket by filing status
\$23,201 to \$94,300
• Tax bracket by filing status
\$11,601 to \$47,150
• Tax bracket by filing status
\$16,551 to \$63,100
• Tax rate
22%
• Tax bracket by filing status
\$47,151 to \$100,525
• Tax bracket by filing status
\$94,301 to \$201,050
• Tax bracket by filing status
\$47,151 to \$100,525
• Tax bracket by filing status
\$63,101 to \$100,500
• Tax rate
24%
• Tax bracket by filing status
\$100,526 to \$191,950
• Tax bracket by filing status
\$201,051 to \$383,900
• Tax bracket by filing status
\$100,526 to \$191,950
• Tax bracket by filing status
\$100,501 to \$191,950
• Tax rate
32%
• Tax bracket by filing status
\$191,951 to \$243,725
• Tax bracket by filing status
\$383,901 to \$487,450
• Tax bracket by filing status
\$191,951 to \$243,725
• Tax bracket by filing status
\$191,951 to \$243,700
• Tax rate
35%
• Tax bracket by filing status
\$243,726 to \$609,350
• Tax bracket by filing status
\$487,451 to \$731,200
• Tax bracket by filing status
\$243,726 to \$365,600
• Tax bracket by filing status
\$243,701 to \$609,350
• Tax rate
37%
• Tax bracket by filing status
\$609,351 and up
• Tax bracket by filing status
\$731,201 and up
• Tax bracket by filing status
\$365,601 and up
• Tax bracket by filing status
\$609,350 and up

Let’s look at an example of how tax rates and brackets work. We have Sara and Tom who are married and file a joint tax return. After taking the standard deductions, they have taxable income of \$125,300. Here’s how their federal taxes will be calculated:

• The first \$23,200 of their taxable income falls into the 10% tax rate/bracket. That means the tax on this income is \$2,320 (\$23,200 x 10%).
• Next, \$71,100 (\$94,300 – \$23,200) of taxable income falls into the 12% tax rate/bracket. The tax on this is \$8,532 (\$71,100 x 12%).
• Finally, the remaining \$31,000 (\$125,300 – \$94,300) of taxable income falls into the 22% tax rate/bracket, resulting in \$6,820 of taxes.

Sara and Tom’s total federal tax will be about \$17,672 (\$2,320 + \$8,532 + \$6,820). As you can see, Sara and Tom made their way through three tax rates/brackets, with a portion of their income being taxed at 10%, then at 12%, and the final bit of income being taxed at 22%. This same process works no matter how much income you have. The highest income taxpayers will progress through all seven federal tax brackets until they top out at the 37% tax rate, at which point all other income is taxed at the higher tax rate.

## What is a marginal tax rate and why does it matter?

The highest tax rate that applies to you is called your marginal tax rate. When it comes to realizing additional income, the taxes you’ll pay on each additional dollar will be at your marginal tax rate. Knowing this tax rate comes in handy when it’s time to do some tax planning because it helps determine which tax strategies could work best for your situation.

Here’s an example of how knowing your marginal tax rate can be very useful. Let’s say your normal marginal tax rate is 24%, but this year, you’re going to end up with an unexpectedly large bonus. However, that bonus pushes you in the 32% tax bracket, but you really don’t want to be taxed at that higher rate. What can you do?

One option could be to contribute some of that bonus to a tax-deferred retirement account. Assuming you have access to a 401(k) plan, and you have not maxed out your contributions, making additional tax-deferred contributions could reduce your taxable income and drop your marginal tax rate back down to 24%, saving you 8% on taxes on the income that would've fallen into the 32% tax rate/bracket.

To learn more about this and other tax strategies to manage your taxes, check out Schwab’s Tax Bracket Management guide.

One thing to keep in mind is that you could have multiple marginal taxes rates. You’ll potentially have a marginal tax rate for federal ordinary income, federal long-term capital gain income, and state taxes as well.

## Bottom line

Remember, these are all just simple examples of how taxes are calculated. There are many other considerations when it comes to determining your total tax bill, such as what other deductions and credits you’re allowed. Also, these examples only look at federal taxes, and depending on where you live, state taxes could also be due. We believe tax planning is an important part of your overall wealth management. That’s why we recommend meeting with a tax and/or financial planning professional to get guidance specific to your situation.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Investing involves risk, including loss of principal.

Schwab does not provide tax advice. Clients should consult a professional tax advisor for their tax advice needs.

The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.

Supporting documentation for any claims or statistical information is available upon request.

0324-PUMS