In the U.S., your tax bill rises with your income.
There are currently seven tax brackets that you might fall into: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Each bracket applies to a different taxable income threshold, and the corresponding percentages represent the tax rate you’ll pay on that portion of your income.
Here’s what you need to know before you file for tax year 2024.
How Do Tax Brackets Work?
When you file your taxes, the IRS divides your taxable income into different brackets based on the amount and your filing status.
2024 Tax Brackets
| Tax Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 10% | $0 to $11,600 | $0 to $23,200 | $0 to $11,600 | $0 to $16,550 |
| 12% | $11,601 to $47,150 | $23,201 to $94,300 | $11,601 to $47,150 | $16,551 to $63,100 |
| 22% | $47,151 to $100,525 | $94,301 to $201,050 | $47,151 to $100,525 | $63,101 to $100,500 |
| 24% | $100,526 to $191,950 | $201,051 to $383,900 | $100,526 to $191,950 | $100,501 to $191,950 |
| 32% | $191,951 to $243,725 | $383,901 to $487,450 | $191,951 to $243,725 | $191,951 to $243,700 |
| 35% | $243,726 to $609,350 | $487,451 to $731,200 | $243,726 to $365,600 | $243,701 to $609,350 |
| 37% | $609,351 or more | $731,201 or more | $365,601 or more | $609,350 or more |
The tax system is progressive. That means you will only pay a single rate for all of your income if you fall within the lowest tax bracket.
Under this system, you pay a different tax rate for each income level that you hit.
For example, if you’re single and make $50,000 in taxable income for 2024, you’ll pay:
- 10% on the first $11,000.
- 12% on $33,724, the amount between $11,001 and $44,725.
- 22% on $5,274, the amount between $44,726 and $95,375.
Marginal Tax Rate
Your marginal tax rate is the highest tax rate that you pay on your income. In the above example, your marginal tax rate would be 22%.
Effective tax rate
Your effective tax rate is the average tax rate that you pay. You can figure it out by dividing your total tax liability by your taxable income.
For example, if you paid $10,000 in taxes on a taxable income of $50,000, your effective tax rate would be 20% (10,000/50,000 = 0.2). In other words, you owe an average of 20% on each dollar of taxable income.
How Do Tax Rates Change Based on Filing Status?
There are five main filing statuses: single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child.
Married couples who file jointly have higher income thresholds for each tax bracket compared to single taxpayers.
Do States Follow the Same Tax Brackets?
Don’t expect to be in the same brackets when you pay state taxes. Some states follow a similar system, some skip the brackets, and others don’t have a state income tax. For example, New Jersey’s state income tax ranges from 1.4% to 10.75%, while nearby Pennsylvania’s is 3.07% flat.
How to Get into a Lower Tax Bracket
Is your tax bill too high? You can get into a lower bracket if you reduce your taxable income. Making less money isn’t an attractive strategy; luckily, there are other options.
One way to potentially get a smaller tax bill is to invest in a retirement account like a 401(k). You can deduct your contributions and lower your taxable income. Depending on how much you deduct, you might be able to drop into a lower tax bracket.
Another strategy is to take advantage of tax credits. Tax credits actually reduce your bill, while deductions only reduce your taxable income. Some common tax credits include the Earned Income Tax Credit, Child and Dependent Care Credit, and American Opportunity Tax Credit.
Speak with a tax professional if you want to save the most money. Countless taxpayers overpay because they don’t realize what deductions or credits they qualify for. At Kondler & Associates, CPAs, we specialize in strategic tax planning.
Prepare for the Future
Tax brackets can change every year, so staying informed on the current rates and thresholds is critical. Understanding current tax laws and regulations is important, too.
Visit the IRS’s website or read our blog to stay updated on IRS and tax news. If you have any questions, reach out to our team of experienced CPAs. Kondler & Associates, CPAs, is here to help.
