2023-2024 Federal Income Tax Brackets And Rates

As tax season quickly approaches, it’s crucial to understand what tax brackets are and how they affect what you may owe. The United States has a progressive tax system, so your income is divided into portions called tax brackets.

Tax brackets indicate the tax rate you’ll pay on each portion of your taxable income. As your income increases, so will your tax rate. Taxpayers with higher incomes can expect to pay a higher tax rate. There are currently seven federal tax brackets, ranging from 10% to 37%, which are used to determine how much you’ll pay in federal income taxes.

Before you start to prepare your 2023 income taxes, let’s review the 2023 income tax brackets — what they are, how to figure out which bracket you fall into and how this affects your income taxes.

Federal Tax Brackets And Tax Rates For 2023-2024

Wondering which tax bracket(s) you’re in for your April 2024 tax return? Use the chart below to figure out your tax brackets based on your income and filing status.

It’s also noteworthy that tax brackets and rates change each tax season, making it possible for your bracket to change each year even if your income doesn’t. This is because the Internal Revenue Service (IRS) adjusts tax brackets each year to prevent “bracket creep.” Bracket creep happens when inflation puts taxpayers into a higher income tax bracket without an actual increase in income. 

For taxes due in April 2024, the IRS raised the income thresholds for tax brackets by about 7% because of inflation. Some taxpayers might fall into a lower tax bracket than in previous years.

How Do Tax Brackets Work?

Tax brackets show you how portions of your income are taxed, and at what rate. If you’re filing as a single taxpayer, for example, the first $11,000 of your taxable income (also known as your adjusted gross income) is taxed at 10%. The next portion of your income is taxed at 12%. This process continues until all of your taxable dollars are accounted for. Following this system, taxpayers with higher taxable incomes will pay higher tax rates.

It’s a common misconception that when you enter into a higher tax bracket, your entire income is taxed at that higher rate. This is when marginal and effective tax rates come into play — two concepts you’ll want to understand come tax time.

What Is A Marginal Tax Rate?

A marginal tax rate is the highest rate you pay on your taxable income. For example, based on 2023 tax brackets, a single person with $50,000 of taxable income would have a marginal tax rate of 22%; this is the highest tax bracket that taxpayer falls into.

What Is An Effective Tax Rate?

On the other hand, your effective tax rate is the average rate you pay on your entire taxable income. In other words, it’s your total taxes owed divided by your taxable income. Your effective tax rate is typically lower than your marginal tax rate.

Now, let’s consider two examples to gain more insight into how marginal and effective tax rates work. 

Tax Bracket Example #1

If you’re married and filing separately with $35,000 worth of taxable income, that would put you in the 12% federal income tax bracket, or a marginal tax rate of 12%. This doesn’t mean, however, that you’ll pay 12% in taxes for all of your income.

Instead, you would pay 10% on your income up to $11,000. That’s $1,100 owed in taxes. Next, you would pay 12% on the remaining $24,000 of your income, which is $2,880. Without considering any deductions, credits or other taxes and fees, this puts your total federal income tax at $3,980. If you paid a straight 12% on all your income, you’d pay $220 more ($4,200). Instead, your effective tax rate is actually 11.4%, which is your total tax of $3,980 divided by your taxable income of $35,000.

Tax Bracket Example #2

If you file as a single taxpayer with an income of $100,000, you are in the 24% marginal tax bracket. However, although your marginal tax rate is 24%, you would not pay a 24% tax rate on your entire taxable income. Instead, you would pay 10% on your income up to $11,000, 12% on income between $11,001 – $44,725, 22% on income between $44,726 – $95,375, and 24% on the remaining income of $4,625.

This puts your total federal income tax for the year at $17,400.14, or an effective tax rate of 17.4%, without factoring in deductions, credits or other taxes and fees. If you were to pay a straight 24% on $100,000, you’d be paying $24,000, or over $6,500 more. As these examples show, your marginal tax rate and your effective tax rate increase as your income goes up.

How To Get Into A Lower Federal Tax Bracket

If you’re a taxpayer with higher income, you may be looking for ways to lower your tax bill. Consider using these two strategies to move into a lower tax bracket, which could potentially save you hundreds of dollars or more on your yearly tax bill.

Tax Credits

The IRS defines a tax credit as a dollar amount you can deduct from the taxes you owe. Tax credits don’t directly affect your total taxable income or your tax bracket. However, you can use these credits to counteract any taxes you owe.

Tax credits reduce your total tax liability dollar for dollar, making them more profitable than tax deductions which only lower your taxable income. Say, for example, you owe $10,000 in taxes but qualify for a $3,000 tax credit. You would then only have to pay $7,000 in taxes.

Common types of tax credits include:

●      Earned income tax credit

●      Child and dependent care tax credit

●      Lifetime learning tax credit

●      Child tax credit

●      Saver’s credit (retirement contribution savings credit)

Tax Deductions

Tax deductions can also lower your tax bill. Most taxpayers choose to take the standard deduction. The chart below shows the standard deduction for 2023.

Tax Bracket FAQs

Here are some frequently asked questions about tax brackets.

What are tax brackets?

Tax brackets determine the tax rate you’ll pay on each chunk of your taxable income. There are currently seven tax brackets, ranging from 10% to 37%. As your income increases, so does your tax bracket.

What tax bracket am I in?

The tax bracket you fall into will depend on your filing status and your taxable income. You can use these two pieces of information along with the yearly tax bracket chart provided by the IRS to figure out which tax bracket you’re in.

Are tax brackets based on gross income?

Tax brackets are based on taxable income, also known as adjusted gross income (AGI). To calculate your AGI, start with your gross income and then subtract any adjustments to your income.

What is the highest tax bracket?

For the 2023-2024 tax year, the seven federal income tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37% – 37% being the highest rate at which a taxpayer’s income can be taxed. 

Are the tax brackets changing in 2024?

According to the Internal Revenue Service (IRS), the tax rates for the 2024 tax year will remain the same as the 2023 tax year, ranging from 10% to 37%. However, taxpayers can expect slight increases in corresponding income thresholds. For example, single filers with incomes of $11,600 will be taxed at 10%. This is a $600 increase from the previous tax year.

The Bottom Line

Knowing how tax brackets work and what tax bracket you’re in can help you figure out how much you’ll pay in income taxes. The Rocket Money℠ app can help you monitor your taxable income and deductible expenses as you prepare for tax season. Download the Rocket Money app today.