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How Do Tax Brackets Work? Probably Not the Way You Think


How Do Tax Brackets Work? Probably Not the Way You Think

If you work for a living, chances are you’ve heard at least a little bit about tax brackets, the progressive system the government uses to discern how much you owe Uncle Sam.

The system is deceptively simple: The higher your income, the higher the percentage of it you fork over to the government.

But as it turns out, this seemingly transparent structure is actually widely misunderstood.

And don’t worry — the news we’ve got is good news. Read on to learn everything you need to know about how tax brackets *actually* operate.

What Are the Federal Income Tax Brackets for 2019?

Let’s start from the top. What, exactly, is the tax bracket system, and what are the most up-to-date income ranges and percentages?

The tax bracket system is a progressive series of tax rates based on your taxable income. More specifically, it’s based on adjusted gross income, or AGI, which is your gross income minus your deductions.

The exact income ranges do vary based on your filing status — that is, whether you’re filing singly, jointly with a married partner, or as a head of household. You can find the full, updated set of tax brackets broken down by filing status here, but all of them fall into the same basic breakdown: seven brackets, ranging from 10% to 37%, depending on your income.

For single filers, here’s how the brackets break down.

Rate of Taxations Taxable Income Over
10% $0
12% $9,700
22% $39,475
24% $84,200
32% $160,725
35% $204,100
37% $510,300

The more you make, the higher your bracket, a system that’s meant to put more tax burden on the people who can afford to handle it. Of course, it can also make people feel punished for earning more dough.

But there’s an important caveat to understand before you throw in the towel and start slacking at work as hard as possible.

How Tax Brackets REALLY Work (Hint: It’s Not as Bad as You Think)

It’s true that if you make more income, you’ll probably end up paying more in taxes.

But here’s the twist: Each tax rate applies only to the income in that specific tax bracket. Which is to say, if your income increases and you “roll over” into a higher bracket, only the cash in that bracket will be taxed at that percentage — not the entire sum of your income.

Let’s use an example to clarify.

Say you’re a single filer who made $85,000 in 2019. Nice going — that’s a lot of cash!

But in the midst of popping Champagne bottles to celebrate your success, you have an oh no moment: that figure hikes you from the 22% tax bracket to the 24% tax bracket, and all over a measly $800. (The threshold is $84,200.)

Two percent might not seem like much, but all of a sudden you’re paying nearly a quarter of your income back to Uncle Sam in taxes?? Yikes.

But before you go downing that bubbly in a decidedly-less-excited manner, though, take heart. Because the entire $85,000 you made won’t be taxed at 24%: only that $800, which falls into the 24% bracket, will. The rest of your income will be taxed by the respective brackets it falls into. Here’s how it looks in numbers:

What DOESN’T Happen:

$85,000 x 0.24 = $20,400 tax bill ?

What DOES Happen:

$9,700 x 0.10 = $970

$29,775 x 0.12 = $3,573

$44,725 x 0.22 = $9,839.50

$800 x 0.24  = $192

Grand total = $14,544.50 tax bill. (I mean, still not great… but still a full $5,000 less than you thought you were going to pay!)

So if you’ve been operating under the idea that your tax bracket applies to your entire income, take heart — it’s not so bad after all! Earning more money is still a financially sound goal (uh-doy), even if you’re right on the cusp of a new bracket. Speaking of which… have you talked to your boss about that raise yet? Here’s how.

Jamie Cattanach’s work has been featured at Fodor’s, Yahoo, SELF, The Huffington Post, The Motley Fool and other outlets. Learn more at

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