How tax brackets work.

A tax bracket refers to a range of taxable income to which a certain tax rate applies. In the U.S., there are seven federal tax brackets that apply to different portions of your taxable income. For example, the first $0 to $19,050 of taxable income earned by a married couple filing jointly falls into the lowest tax bracket and is taxed at a rate of 10%. For that same couple, any taxable income from $19,051 to $77,400 falls into the next higher tax bracket, which is taxed at 12%.

Many people don't realize that there is also what amounts to a 0% tax bracket. Basically, any income that is covered by the standard deduction or the itemized deduction is exempt from tax, therefore it's essentially a 0% tax bracket. For example, if you're a married couple with $24,000 of income and you take the standard deduction (which is $24,000 in 2018) you will not pay any federal income tax.

This system, with different tax rates applying to various ranges of income, is called a progressive tax system.

What is a marginal tax rate?

Your marginal tax rate is the rate at which your next dollar of income is taxed. It’s important to remember that under the progressive tax system, your entire taxable income is not taxed at your marginal tax rate. Your marginal tax rate only applies to the top tier of your taxable income.

Why is it important to know my estimated tax bracket?

Knowing your marginal income tax bracket helps when you're making decisions on things like deductions or whether municipal bonds make sense. For example, if your marginal tax bracket this year is 35%, and you claim a deduction of $2,000, it will reduce your taxes by $660. If your marginal tax bracket is 15% and you claim the same deduction, you’ll save $300.

2018 federal income tax brackets

Single

Tax rates on
Ordinary Income
From To
10% $0 $9,525
12% $9,526 $38,700
22% $38,701 $82,500
24% $82,501 $157,500
32% $157,501 $200,000
35% $200,001 $500,000
37% $500,001 --------

Married filing jointly / Qualifying widow or widower

Tax rates on
Ordinary Income
From To
10% $0 $19,050
12% $19,051 $77,400
22% $77,401 $165,000
24% $165,001 $315,000
32% $315,001 $400,000
35% $400,001 $600,000
37% $600,001 --------

Married filing separate

Tax rates on
Ordinary Income
From To
10% $0 $9,525
12% $9,526 $38,700
22% $38,701 $82,500
24% $82,501 $157,500
32% $157,501 $200,000
35% $200,001 $300,000
37% $300,001 --------

Head of household

Tax rates on
Ordinary Income
From To
10% $0 $13,600
12% $13,601 $51,800
22% $51,801 $82,500
24% $82,501 $157,500
32% $157,501 $200,000
35% $200,001 $500,000
37% $500,001 --------

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