What Are the Tax Brackets?

U.S. income tax rates are divided into seven segments commonly known as tax brackets. All taxpayers will fall into one of these segments. If you’re trying to determine your tax bracket, you’ll need to know two things:

  • your filing status. That means whether you file as single, married (jointly or separately) or as head of household.
  • your taxable income. Your taxable income does not equal your wages; rather it’s the total of your ordinary income sources (wages, investment interest, retirement distributions, etc.) minus any adjustments and deductions.

 2018 Tax Brackets

This table reflects the 2018 tax brackets after tax reform was enacted for all filing statuses. Note: the brackets for Qualifying Widow(ers) are the same as for Married Filing Jointly status. For 2017 tax brackets, review the table found lower on this page.

2018 tax brackets

Understanding How Federal Income Tax Rates and Tax Brackets Work

Once you know your filing status and amount of taxable income, you can find your tax bracket. However, you should know that not all of your income is taxed at that rate. For example, if you fall in the 22% tax bracket, not all of your income is taxed at 22%. Why is that?

The reason is that the U.S. income tax system uses a graduated tax system, designed so that individual taxpayers pay an increasing rate as their income rises through progressive tax brackets as outlined in the table above.

Let’s look at Sarah, whose filing status is Single and who has a taxable income of $50,000. Using the 2018 information above, we can determine Sarah’s total tax.

  1. Determine the amount of tax for each segment of taxable income. Sarah will pay:
    • 10% on the first $9,525 of taxable income
    • 12% on the next $29,175 ($9,525-$38,700)
    • 22% on the remaining $11,300 ($38,700-$50,000)
  2. Add the taxable amounts for each segment ($952.50 + $3,501 + $2,486) = $ 6,939.50

For 2018, Sarah will pay $6,939.50 in taxable income.

Also, as mentioned earlier, these rates apply to income from ordinary sources. Other rates apply to other types of income. For instance, long-term capital gains are taxed at 0% to the extent you are in the lowest two tax brackets.

Income Tax Brackets: Important Terms

The terminology around income tax brackets and tax rates can be confusing at times. To clarify what’s meant, let’s review a few relevant terms that relate to this topic.

  • Income Tax Rate – These are the various percentages at which taxes are applied.
  • Income Tax Brackets – These are the ranges of income to which a tax rate applies. Currently there are seven ranges or segments.
  • Marginal Tax Rate – This is the rate at which the last dollar of income is taxed. In the example above, Sarah’s marginal tax rate is 22%.
  • Effective or Average Tax Rate – This is the total tax paid as a percentage of total income taxed. In Sarah’s case, her average tax rate is 13.8% ($6,939.50 / $50,000).

How Tax Reform Changed the Tax Brackets

Under the Tax Cuts and Jobs Act, the tax reform legislation passed at the end of 2017, the tax brackets shifted slightly. Below, you can see the tax brackets as they apply to your 2017 taxes.

2017 tax brackets

Tax Bracket Questions?

Want to understand how the changes to the tax brackets affect you? Or learn how you may be able to lower your taxable income? The knowledgeable Tax Pros at H&R Block can help.

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