![]() ![]() The tax brackets are determined according to your filing status: single, married filing jointly (MFJ), married filing separately (MFS), and head of household (HoH). Now that you have the basics, there’s one other complicating factor: filing statuses. ![]() The income tax brackets for 2021-2022, by filing status Using the example above, your effective tax rate would be 14%. So the effective tax rate is used to describe the average rate that you actually pay. So using the example above, where you made $50,000, your marginal tax rate would be 22%.īut as we’ve learned, the majority of your income isn’t taxed at 22%. Your marginal tax rate simply refers to the highest tax bracket your income is exposed to. You may have heard the terms “marginal” and “effective” tax rates thrown around. The only chunk of his income that is taxed at the highest rate (37%) is the income in excess of half a million dollars. These buckets are called “tax brackets.” The idea is to treat everyone equally while still requiring higher taxes from higher earners.įor instance, the first $10,275 that Jeff Bezos makes is taxed at 10%, just like everyone else. So your total tax liability would be broken down like this: The first $10,275 is taxed at 10%, the next $31,500 is taxed at 12%, and the remainder of your salary ($8,225) is taxed at 22%. The first bucket of income is taxed at 10%, the second at 12%, the third at 22%, and so on.įor example, let’s say you have gross wages of $50,000. The easiest way to understand the progressive tax system is to think of income in terms of buckets. Income taxesįederal income tax is the most common type of tax, and it applies to all “earned income.” (That means any income you received in exchange for performing a job.) You may have heard the US tax system described as “progressive” or “graduated.” Here’s what that means. Here’s what you need to know about them both. (The latter applies to any money you earn from freelancing, a side hustle, or a small business.) What taxes do you pay when you file your return?Ī number of different taxes are calculated on your annual return, but for most Americans, only two are relevant: income tax and self-employment tax.
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