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Tax brackets are the different levels of income that are taxed at different rates. The United States has a progressive tax system, which means that as your income increases, so does the rate of taxation. This is done to ensure that those with higher incomes pay more taxes than those with lower incomes.
The federal government sets tax brackets each year and they can vary depending on filing status and other factors. Generally speaking, there are seven federal tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. The rate you pay depends on your taxable income and filing status.
For example, if you’re single and have a taxable income of $50,000 in 2020, you would be in the 22% tax bracket. That means any additional money earned over $50,000 would be taxed at 22%. If you’re married filing jointly with a taxable income of $100,000 in 2020, then you would be in the 24% tax bracket; any additional money earned over $100,000 would be taxed at 24%.
In addition to federal taxes, many states also have their own set of tax brackets. These state taxes can range from 0% to 13%. It’s important to understand both your federal and state taxes when determining how much money you owe each year.
It’s also important to note that just because you fall into one particular tax bracket doesn’t mean all your earnings will be taxed at that rate; only the amount above the threshold for that bracket is subject to taxation at that rate. For example, if you earn $60,000 as a single filer in 2020 (which puts you in the 22% bracket), only $10,000 (the amount above the threshold) will actually be taxed at 22%. The rest will still be subject to taxation but it won't necessarily all be taxed at 22%.
Understanding how different tax brackets work is an important part of managing your finances responsibly and ensuring that you don't end up paying more than necessary come April 15th!
The federal government sets tax brackets each year and they can vary depending on filing status and other factors. Generally speaking, there are seven federal tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. The rate you pay depends on your taxable income and filing status.
For example, if you’re single and have a taxable income of $50,000 in 2020, you would be in the 22% tax bracket. That means any additional money earned over $50,000 would be taxed at 22%. If you’re married filing jointly with a taxable income of $100,000 in 2020, then you would be in the 24% tax bracket; any additional money earned over $100,000 would be taxed at 24%.
In addition to federal taxes, many states also have their own set of tax brackets. These state taxes can range from 0% to 13%. It’s important to understand both your federal and state taxes when determining how much money you owe each year.
It’s also important to note that just because you fall into one particular tax bracket doesn’t mean all your earnings will be taxed at that rate; only the amount above the threshold for that bracket is subject to taxation at that rate. For example, if you earn $60,000 as a single filer in 2020 (which puts you in the 22% bracket), only $10,000 (the amount above the threshold) will actually be taxed at 22%. The rest will still be subject to taxation but it won't necessarily all be taxed at 22%.
Understanding how different tax brackets work is an important part of managing your finances responsibly and ensuring that you don't end up paying more than necessary come April 15th!
