| Key Tax Information for 2022-2023 |
|---|
| 📊 Tax Rate Range: 10% – 37% |
| 📊 Progressive System: Income divided into brackets with varying tax rates |
| 🔝 Marginal Tax Rate: Highest rate applied to the income’s top bracket |
| 📈 Inflation Adjustment: Tax brackets annually updated to counter rising living costs |
There are seven federal income tax rates, namely 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The specific tax brackets and rates that apply to you are determined by your taxable income and filing status.
The U.S. federal tax rates will remain consistent until 2025, a result of the Tax Cuts and Jobs Act of 2017. However, the income thresholds that define these tax brackets undergo annual adjustments to account for inflation’s impact.
These adjustments play a crucial role in preventing taxpayers from being pushed into higher tax brackets due to increased living costs. Simultaneously, they can reduce taxes for those whose earnings haven’t kept pace with inflation.
For the latest information on tax brackets, including the 2023 figures and those for previous years, you can access this page.
| Tax Rate | For Single Filers | For Married Individuals Filing Joint Returns | For Heads of Households |
|---|---|---|---|
| 10% | $0 to $11,000 | $0 to $22,000 | $0 to $15,700 |
| 12% | $11,000 to $44,725 | $22,000 to $89,450 | $15,700 to $59,850 |
| 22% | $44,725 to $95,375 | $89,450 to $190,750 | $59,850 to $95,350 |
| 24% | $95,375 to $182,100 | $190,750 to $364,200 | $95,350 to $182,100 |
| 32% | $182,100 to $231,250 | $364,200 to $462,500 | $182,100 to $231,250 |
| 35% | $231,250 to $578,125 | $462,500 to $693,750 | $231,250 to $578,100 |
| 37% | $578,125 or more | $693,750 or more | $578,100 or more |
What you'll learn:
➤ 2023 Tax Brackets
Looking ahead to taxes due on April 15, 2024, the 2023 tax tables come into focus. Just like in tax year 2022, seven tax rates remain steadfast at 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
However, a notable shift is the substantial adjustment of income thresholds for the 2023 tax brackets. These thresholds have surged by approximately 7% compared to 2022, primarily driven by record-high inflation.
Consequently, this alteration may position certain individuals in a lower tax bracket than they previously occupied.
Single Filers
| Tax Rate | Taxable Income Bracket | Tax Owed |
|---|---|---|
| 10% | $0 to $11,000 | 💰 10% of taxable income. |
| 12% | $11,001 to $44,725 | 💰 $1,100 + 12% of amount over $11,000. |
| 22% | $44,726 to $95,375 | 💰 $5,147 + 22% of amount over $44,725. |
| 24% | $95,376 to $182,100 | 💰 $16,290 + 24% of amount over $95,375. |
| 32% | $182,101 to $231,250 | 💰 $37,104 + 32% of amount over $182,100. |
| 35% | $231,251 to $578,125 | 💰 $52,832 + 35% of amount over $231,250. |
| 37% | $578,126 or more | 💰 $174,238.25 + 37% of amount over $578,125. |
Married (Joint Filers)
| Tax Rate | Taxable Income Bracket | Taxes Owed |
|---|---|---|
| 10% | $0 to $22,000 | 💰 10% of taxable income. |
| 12% | $22,001 to $89,450 | 💰 $2,200 + 12% of amount over $22,000. |
| 22% | $89,451 to $190,750 | 💰 $10,294 + 22% of amount over $89,450. |
| 24% | $190,751 to $364,200 | 💰 $32,580 + 24% of amount over $190,750. |
| 32% | $364,201 to $462,500 | 💰 $74,208 + 32% of amount over $364,200. |
| 35% | $462,501 to $693,750 | 💰 $105,664 + 35% of amount over $462,500. |
| 37% | $693,751 or more | 💰 $186,601.50 + 37% of amount over $693,750. |
Married (Single Filers)
| Tax Rate | Taxable Income Bracket | Taxes Owed |
|---|---|---|
| 10% | $0 to $11,000 | 💰 10% of taxable income. |
| 12% | $11,001 to $44,725 | 💰 $1,100 + 12% of amount over $11,000. |
| 22% | $44,726 to $95,375 | 💰 $5,147 + 22% of amount over $44,725. |
| 24% | $95,376 to $182,100 | 💰 $16,290 + 24% of amount over $95,375. |
| 32% | $182,101 to $231,250 | 💰 $37,104 + 32% of amount over $182,100. |
| 35% | $231,251 to $346,875 | 💰 $52,832 + 35% of amount over $231,250. |
| 37% | $346,876 or more | 💰 $93,300.75 + 37% of amount over $346,875. |
Head of Household
| Tax Rate | Taxable Income Bracket | Taxes Owed |
|---|---|---|
| 10% | $0 to $15,700 | 💰 10% of taxable income. |
| 12% | $15,701 to $59,850 | 💰 $1,570 + 12% of amount over $15,700. |
| 22% | $59,851 to $95,350 | 💰 $6,868 + 22% of amount over $59,850. |
| 24% | $95,351 to $182,100 | 💰 $14,678 + 24% of amount over $95,350. |
| 32% | $182,101 to $231,250 | 💰 $35,498 + 32% of amount over $182,100. |
| 35% | $231,251 to $578,100 | 💰 $51,226 + 35% of amount over $231,250. |
| 37% | $578,101 or more | 💰 $172,623.50 + 37% of amount over $578,100. |
➤ 2022 Tax Brackets
The tax tables for 2022 provided below pertain to taxes due on April 18, 2023. Individuals who requested a tax extension by the initial tax day have until October 16, 2023, to complete and file their 2022 tax returns.
Single Filers
| Tax Rate | Taxable Income Bracket | Tax Owed |
|---|---|---|
| 10% | $0 to $10,275 | 10% of taxable income |
| 12% | $10,276 to $41,775 | $1,027.50 plus 12% of the amount over $10,275 |
| 22% | $41,776 to $89,075 | $4,807.50 plus 22% of the amount over $41,775 |
| 24% | $89,076 to $170,050 | $15,213.50 plus 24% of the amount over $89,075 |
| 32% | $170,051 to $215,950 | $34,647.50 plus 32% of the amount over $170,050 |
| 35% | $215,951 to $539,900 | $49,335.50 plus 35% of the amount over $215,950 |
| 37% | $539,901 or more | $162,718 plus 37% of the amount over $539,900 |
Married (Joint Filers)
| Tax Rate | Taxable Income Bracket | Taxes Owed |
|---|---|---|
| 10% | $0 to $20,550 | 10% of taxable income |
| 12% | $20,551 to $83,550 | $2,055 plus 12% of the amount over $20,550 |
| 22% | $83,551 to $178,150 | $9,615 plus 22% of the amount over $83,550 |
| 24% | $178,151 to $340,100 | $30,427 plus 24% of the amount over $178,150 |
| 32% | $340,101 to $431,900 | $69,295 plus 32% of the amount over $340,100 |
| 35% | $431,901 to $647,850 | $98,671 plus 35% of the amount over $431,900 |
| 37% | $647,851 or more | $174,253.50 plus 37% of the amount over $647,850 |
Married (Single Filers)
| Tax Rate | Taxable Income Bracket | Taxes Owed |
|---|---|---|
| 10% | $0 to $10,275 | 10% of taxable income |
| 12% | $10,276 to $41,775 | $1,027.50 plus 12% of the amount over $10,275 |
| 22% | $41,776 to $89,075 | $4,807.50 plus 22% of the amount over $41,775 |
| 24% | $89,076 to $170,050 | $15,213.50 plus 24% of the amount over $89,075 |
| 32% | $170,051 to $215,950 | $34,647.50 plus 32% of the amount over $170,050 |
| 35% | $215,951 to $323,925 | $49,335.50 plus 35% of the amount over $215,950 |
| 37% | $323,926 or more | $87,126.75 plus 37% of the amount over $323,925 |
Head of Household
| Tax Rate | Taxable Income Bracket | Taxes Owed |
|---|---|---|
| 10% | $0 to $14,650 | 10% of taxable income |
| 12% | $14,651 to $55,900 | $1,465 plus 12% of the amount over $14,650 |
| 22% | $55,901 to $89,050 | $6,415 plus 22% of the amount over $55,900 |
| 24% | $89,051 to $170,050 | $13,708 plus 24% of the amount over $89,050 |
| 32% | $170,051 to $215,950 | $33,148 plus 32% of the amount over $170,050 |
| 35% | $215,951 to $539,900 | $47,836 plus 35% of the amount over $215,950 |
| 37% | $539,901 or more | $161,218.50 plus 37% of the amount over $539,900 |
➤ How Income Tax Brackets Work
Income tax brackets work by dividing your taxable income into different ranges, each with its own corresponding tax rate. The tax rate mentioned, such as 12% or 22%, represents the highest tax rate applicable to a specific range of your income.
This highest rate is often referred to as the “marginal rate.” It’s essential to understand that only the portion of your income falling within that specific bracket is taxed at the stated percentage, not your entire income.
Progressive federal income tax rates
The U.S. employs a progressive tax system for federal income tax rates. This approach involves categorizing your taxable income into segments, or tax brackets.
Each bracket corresponds to a specific tax rate, and the government calculates your owed tax by applying the relevant rate to each segment. This system results in higher federal income tax rates for individuals with greater taxable incomes and lower rates for those with lesser incomes.
The key advantage of tax brackets is that regardless of the bracket you fall into, you don’t pay the specified tax rate on your entire income.
Examples
For instance, consider a single filer with $32,000 in taxable income in 2022. Although they are in the 12% tax bracket, they do not pay 12% on the entire $32,000. Instead, they pay 10% on the first $10,275 and 12% on the remaining amount. This distribution can be seen in the tax brackets provided above.
Consider another scenario: If your taxable income amounts to $50,000, your tax calculation would unfold as follows. You’d pay 10% on the initial $10,275, then 12% on the portion between $10,276 and $41,775. The remaining part, which enters the 22% tax bracket, would be taxed at 22%.
The overall tax bill would be approximately $6,600, roughly equivalent to 13% of your taxable income. This effective tax rate of 13% is lower than your placement in the 22% bracket, illustrating the nuanced nature of the tax system.
Annually updated income thresholds for tax brackets
The income thresholds that define the federal tax brackets receive annual adjustments, aligning with inflation rates. This practice safeguards against “bracket creep,” where inflation inadvertently pushes individuals into higher tax brackets.
State income taxes are different than federal income taxes
Furthermore, it’s important to note that state income tax systems can diverge from federal counterparts. States may employ distinct approaches, featuring dissimilar tax brackets or entirely different systems.
To illustrate, Colorado enforces a constant income tax rate of 4.4% on taxable income, while certain states like Wyoming abstain from imposing state income taxes altogether. This variance underscores the diversity in state taxation methodologies.
➤ What’s a Marginal Tax Rate?
The marginal tax rate signifies the tax imposed on the final portion of your taxable income, usually corresponding to your highest tax bracket.
Imagine being a single filer in 2023 with $35,000 of taxable income, placing you in the 12% tax bracket. If your taxable income increased by $1, that additional dollar would also be taxed at 12%.
Suppose your taxable income was $45,000 instead. While most of it would still fall under the 12% bracket, the final few hundred dollars would cross into the 22% tax bracket. Consequently, your marginal tax rate would be 22%, reflecting the rate applied to that top segment of your earnings.
What’s an Effective Tax Rate?
The effective tax rate refers to the percentage of your taxable income that is paid in taxes. To calculate it, divide your total tax owed (found on line 16 of Form 1040) by your total taxable income (found on line 15).
How to lower your tax bill
To lower your tax bill and potentially move into a lower tax bracket, there are two primary strategies: utilizing tax credits and deductions.
Tax credits directly decrease your tax liability by an equivalent amount, regardless of your bracket.
Tax deductions, conversely, lower the portion of your income subjected to taxation. Typically, deductions reduce your taxable income proportionally to your highest federal income tax bracket.
For instance, if you’re in the 22% tax bracket, a $1,000 deduction could save you $220.
In essence, capitalize on every applicable tax deduction to reduce your taxable income and potentially shift you into a lower bracket, resulting in a reduced tax rate.
➤ Tax Inflation Adjustments for 2023
In 2023, several changes have been made to the tax system that you should be aware of:
- Energy Efficient Tax Breaks: The Inflation Reduction Act has extended certain energy-related tax breaks and introduced adjustments for the energy-efficient commercial buildings deduction, starting from the 2023 tax year. This deduction’s maximum allowance depends on the energy cost reduction percentage and ranges from $0.54 to $1.07 per certified reduction percentage.
- Standard Deduction Increases: The standard deduction for various filing statuses has increased for the 2023 tax year. For married couples filing jointly, it’s $27,700; for singles and married individuals filing separately, it’s $13,850; and for heads of households, it’s $20,800.
- Marginal Tax Rates: Tax rates for different income levels have remained the same as 2022. The top tax rate is 37% for single taxpayers with incomes above $578,125 ($693,750 for married couples filing jointly).
- Alternative Minimum Tax (AMT) Exemption: The AMT exemption for 2023 is $81,300 and starts to phase out at $578,150 ($126,500 for married couples filing jointly).
- Earned Income Tax Credit (EITC) Increase: The maximum EITC amount for qualifying taxpayers with three or more qualifying children has risen to $7,430 for 2023.
- Other Adjustments: Various other adjustments, such as changes in maximum contributions to health flexible spending arrangements, deductible amounts for Medical Savings Account coverage, foreign earned income exclusion, estate tax exclusion, annual gift exclusion, adoption credit, and more, have also been made for the 2023 tax year.
It’s important to note that indexing for inflation is a critical part of these adjustments, helping prevent the impact of inflation from pushing individuals into higher tax brackets.
However, certain items, like the personal exemption, remain unaffected by indexing due to provisions like the Tax Cuts and Jobs Act.
Always stay informed to make the most of these changes in your tax planning.
➤ Alternative Minimum Tax (AMT)
Introduced in the 1960s, the Alternative Minimum Tax (AMT) was designed to prevent wealthy individuals from evading income tax.
This parallel system requires high-income taxpayers to compute their tax liability twice: once using the regular income tax rules and again using the AMT rules. They then pay the higher of the two amounts.
Under the AMT, taxpayers use an alternative measure of taxable income known as Alternative Minimum Taxable Income (AMTI). To shield low- and middle-income individuals from AMT, taxpayers are permitted to exclude a substantial portion of their income from AMTI.
Nevertheless, this exclusion gradually diminishes for those with high incomes. The AMT imposes two rates: 26 percent and 28 percent.
For the year 2023, the AMT exemption amounts stand at $81,300 for single filers and $126,500 for married couples filing jointly (Table 3).
2023 Alternative Minimum Tax (AMT) Exemptions
| Filing Status | Exemption Amount |
|---|---|
| Unmarried Individuals | $81,300 |
| Married Filing Jointly | $126,500 |
For 2023, the 28 percent AMT rate applies to any excess AMTI over $220,700 for all taxpayers ($110,350 for those married and filing separate returns).
AMT exemptions phase out at a rate of 25 cents per dollar earned once AMTI reaches $578,150 for single filers and $1,156,300 for married couples filing jointly (Table 4).
AMT Exemption Phaseout Thresholds
| Filing Status | Threshold |
|---|---|
| Unmarried Individuals | $578,150 |
| Married Filing Jointly | $1,156,300 |
➤ Earned Income Tax Credit (EITC) 2023
For filers with no children, the maximum EITC is $560. For those with children, the maximum credits are as follows:
- One child: $3,995
- Two children: $6,604
- Three or more children: $7,430
| Filing Status | No Children | One Child | Two Children | Three or More Children |
|---|---|---|---|---|
| Single or Head of Household | ||||
| Income at Max Credit | $7,840 | $11,750 | $16,510 | $16,510 |
| Maximum Credit | $600 | $3,995 | $6,604 | $7,430 |
| Phaseout Begins | $9,800 | $21,560 | $21,560 | $21,560 |
| Phaseout Ends (Credit Equals Zero) | $17,640 | $46,560 | $52,918 | $56,838 |
| Married Filing Jointly | ||||
| Income at Max Credit | $7,840 | $11,750 | $16,510 | $16,510 |
| Maximum Credit | $600 | $3,995 | $6,604 | $7,430 |
| Phaseout Begins | $16,370 | $28,120 | $28,120 | $28,120 |
| Phaseout Ends (Credit Equals Zero) | $24,210 | $53,120 | $59,478 | $63,398 |
➤ Child Tax Credit
The Child Tax Credit offers a maximum of $2,000 per qualifying child, without adjustments for inflation. However, the refundable portion of the Child Tax Credit does account for inflation and is set to increase from $1,500 to $1,600 in the year 2023.
➤ Long-Term Capital Gains Tax Rates & Brackets
Long-term capital gains are subjected to distinct brackets and rates compared to regular income. Refer to Table 6 for details.
2023 Capital Gains Tax Brackets For Unmarried Individuals
- 0% Tax on Taxable Income up to $0
- 15% Tax on Taxable Income over $44,625
- 20% Tax on Taxable Income over $492,300
For Married Individuals Filing Joint Returns:
- 0% Tax on Taxable Income up to $0
- 15% Tax on Taxable Income over $89,250
- 20% Tax on Taxable Income over $553,850
For Heads of Households:
- 0% Tax on Taxable Income up to $0
- 15% Tax on Taxable Income over $59,750
- 20% Tax on Taxable Income over $523,050
➤ Qualified Business Income Deduction (Sec. 199A)
Embedded within the Tax Cuts and Jobs Act of 2017 (TCJA), a deduction of 20 percent is granted to pass-through businesses. Gradual limits on this deduction are activated for taxpayers with earnings surpassing $182,100 (or $364,200 for those filing jointly) in 2023 (refer to Table 7).
2023 Thresholds for Qualified Business Income Deduction
| Filing Status | Threshold |
|---|---|
| Unmarried Individuals | $182,100 |
| Married Filing Jointly | $364,200 |
| Source: Internal Revenue Service |
➤ Annual Exclusion for Gifts
As of 2023, the initial $17,000 of gifts given to an individual is excluded from taxation, marking an increase from $16,000. For gifts to non-U.S. citizen spouses, the exclusion is elevated from $164,000 to $175,000.
