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Tax Planning

What Are Tax Brackets, and How Do They Work?

Learn how tax brackets and rates can affect your tax bill and potentially influence investment decisions.
April 13, 2026•Hayden Adams

Key takeaways

  • Federal income taxes are progressive, meaning only portions of your income are taxed at higher rates as you move into higher tax brackets.
  • There are seven federal tax rates that range from 10% to 37%.
  • Tax brackets and tax rates serve different roles, with brackets defining income ranges and rates determining how each portion of your income is taxed.
  • Your marginal tax rate is not an average tax rate, since much of your income is typically taxed at lower rates.
  • Understanding how tax brackets work can support better tax planning, including decisions that affect your tax bill and tax return.

Tax rates and tax brackets determine how much federal income tax you owe, but they're often misunderstood. Many people assume that moving into a higher tax bracket means all of their income is taxed at the higher rate. In reality, the system works differently, with income taxed in layers. Here's how tax rates and tax brackets work, and what they mean for your overall tax bill.

What is a tax rate?

A tax rate is the percentage used to calculate how much tax you owe on a certain amount of income.

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What is a tax bracket?

A tax bracket is a range of income taxed at a specific tax rate. The tax brackets that apply to you will depend not only on how much taxable income you have but also on your filing status.

2026 federal income tax brackets by filing status

Tax rate
SingleHead of householdMarried couple filing jointlyMarried couple filing separately
10%$0 to $12,400$0 to $17,700$0 to $24,800$0 to $12,400
12%$12,401 to $50,400$17,701 to $67,450$24,801 to $100,800$12,401 to $50,400
22%$50,401 to $105,700$67,451 to $105,700$100,801 to $211,400$50,401 to $105,700
24%$105,701 to $201,775$105,701 to $201,750$211,401 to $403,550$105,701 to $201,775
32%$201,776 to $256,225$201,751 to $256,200$403,551 to $512,450$201,776 to $256,225
35%$256,226 to $640,600$256,201 to $640,600$512,451 to $768,700$256,226 to $384,350
37%$640,601 and up$640,601 and up$768,701 and up$384,351 and up

2025 federal income tax brackets by filing status

Tax rateSingleHead of householdMarried couple filing jointlyMarried couple filing separately
10%$0 to
$11,925		$0 to
$17,000		$0 to
$23,850		$0 to
$11,925
12%$11,926 to $48,475$17,001 to $64,850$23,851 to
$96,950		$11,926 to
$48,475
22%$48,476 to $103,350$64,851 to $103,350$96,951 to $206,700$48,476 to $103,350
24%$103,351 to $197,300$103,351 to $197,300$206,701 to $394,600$103,351 to $197,300
32%$197,301 to $250,525$197,301 to $250,500$394,601 to $501,050$197,301 to $250,525
35%$250,526 to $626,350$250,501 to $626,350$501,051 to $751,600$250,526 to
$375,800
37%$626,351 and up$626,351 and up$751,601 and up$375,801 and up

How tax brackets work

The Internal Revenue Service (IRS) uses a progressive tax system, taxing portions of your income at different rates. As your income increases, it moves through a series of tax brackets, each with its own tax rate. Only income within a bracket is taxed at that bracket's rate, while income in lower brackets continues to be taxed at lower rates.

How Do Tax Brackets Actually Work?

Let's say you're a single filer with $100,000 in total taxable income in 2026. You might assume since your income falls between $48,476 and $103,350, you'll owe 22% of income tax on your full $100,000. However, under a progressive tax system, the first part of your income is taxed at 10%, the next at 12%, and the remaining at 22%.

How $100,000 in total taxable income for a single filer is taxed in 2026

Stacked bar chart showing how $100,000 of taxable income for a single filer in 2026 is taxed across brackets: $12,400 taxed at 10% ($1,240), $38,000 taxed 12% ($4,560), and $49,600 at 22% ($10,912), for total federal income tax of $16,712 (before credits).

Source: Schwab Center of Financial Research

Total taxable income assumes amount after deductions and other adjustments. Total tax owed is amount before applying credits. For illustrative purposes only. Individual situations will vary.

Your total income tax before credits would be $16,712. This layered approach is why moving into a higher tax bracket doesn't increase the tax rate on your entire income—only the amount within that bracket.

Marginal vs. effective tax rate

Your marginal tax rate is the highest tax rate applied to any portion of your income while your effective tax rate is the average tax rate you pay across all your income.

In the previous example, the marginal tax rate is 22%—the rate applied to the highest layer of income. However, the effective tax rate is only 16.7%, since much of the income was taxed at lower rates. To calculate the effective tax rate, divide the total tax by taxable income, for example: $16,712 ÷ $100,000 = 16.7%

Generally, your effective tax rate will be lower than your marginal tax rate.

What impacts your tax rate?

Several factors can influence your tax rate, including:

  • Income sources: Most earned and investment income—such as wages, bonuses, interest, dividends, and business income—is taxable, though some income may be excluded or partially taxable.
  • Adjustments to income: Certain items, such as traditional IRA contributions, HSA contributions, and eligible student loan interest, can reduce income before deductions are applied.
  • Deductions: After adjustments, either the standard deduction or itemized deductions further reduce taxable income. The option you choose affects how much income is taxed.
  • Filing status: Your filing status determines your standard deduction and the tax brackets that apply, which can change how much of your income is taxable.
  • Pretax contributions: Pretax retirement contributions and the timing of income or deductions can shift how much income falls into higher tax brackets in a given year.

Why tax brackets matter for investors

Tax rates and tax brackets can influence how you manage your income—and how much money you keep after taxes. For example, if additional income—such as a bonus—pushes your earnings into a higher tax bracket, you may be able to reduce your taxable income by contributing the funds to a tax-deferred retirement account.

Let's say your marginal tax rate is 24%, but a large bonus pushes a portion of your income into the 32% tax bracket. By contributing just enough of your bonus to a tax-deferred retirement account, such as a 401(k), to keep your taxable income in the 24% bracket, you could effectively save 8% (the difference between the 32% and 24% tax rates) on that extra income.

Bottom line: Tax brackets play a key role in tax planning decisions

Understanding how brackets, marginal tax rates, and taxable income work together can help with tax planning decisions throughout the year and set clearer expectations for your tax return. Keep in mind that these examples focus on federal income taxes only; state and local taxes may also apply. A tax professional or financial advisor can help you evaluate what role tax brackets play in your specific situation.

Tax bracket FAQs

What is considered taxable income?

Your taxable income includes money you make from a job or self-employment, investment income, unemployment pay, lottery winnings, and most other types of income. Some examples of nontaxable income include gifts, inheritances, child support, life insurance proceeds, and disability income. For IRS purposes, your total taxable income is your gross income minus any allowed tax deductions and other adjustments.

Who determines federal income tax rates and federal income tax brackets?

Federal income tax brackets and federal income tax rates are written into legislative bills by Congress and signed into law by the president of the United States. The IRS enforces tax laws and makes inflation adjustments to the tax bracket income thresholds for each new tax year.

Do federal income tax rates change every tax year?

The main tax rates for each federal income tax bracket (currently 10%, 12%, 22%, 24%, 32%, 35%, and 37%) will change only when Congress passes new legislation—not annually.

Because the IRS adjusts income thresholds for the tax brackets every year to reflect inflation and cost of living, your individual income tax rate may change, depending on how much money you make and your filing status.

Do tax credits affect your tax bracket?

No. Tax credits do not affect your tax bracket or taxable income. While tax brackets are based on your taxable income, tax credits reduce the amount of you owe after your tax is calculated. For example, credits such as the Child Tax Credit or the Earned Income Tax Credit can lower your final tax bill—and in some cases may result in a tax refund—but they don't change which tax bracket you're in or how your income is taxed within each bracket.

How are capital gains taxed compared with ordinary income?

Depending on your holding period, capital gains may be taxed differently than ordinary income. Short term capital gains on investments held a year or less are taxed using federal income tax brackets. Long-term capital gains on assets held more than one year are taxed at a capital gains tax rate of 0%, 15%, or 20%, which is determined by your taxable income and filing status. That said, taxpayers whose modified adjusted gross income (MAGI) exceeds $200,000 for single filers or $250,000 for joint filers in 2026, may owe an additional 3.8% net investment income tax.

Do capital gains push you into a higher tax bracket?

Capital gains can increase your taxable income, but they don't change how your ordinary income is taxed. However, the higher income caused by those earnings can cause any long-term gains to be taxed at a higher capital gains rate.

Is Social Security income taxed?

Social Security benefits may be taxable, depending on your filing status and combined income, which includes your adjusted gross income (AGI)—minus Social Security income—plus nontaxable interest and half of your Social Security benefits as well as half of your spouse's if you're filing jointly. Based on that total, up to 85% of your Social Security benefits may be subject to federal income tax using the same tax brackets that apply to your other ordinary income.

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This material is intended for general informational and educational purposes only. The investment strategies mentioned are not suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.

All expressions of opinion are subject to change without notice in reaction to shifting economic or political 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.

For illustrative purposes only. Individual situations will vary and are not the experience of any specific clients.

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.

This information is not a specific recommendation, individualized tax 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, Estate Attorney) to help answer questions about specific situations or needs prior to taking any action based upon this information.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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