how tax brackets work
the united states uses a progressive tax system meaning taxpayers pay more incremental tax as they earn more income this system aims to provide inherent tax benefits to lower income individuals and collect more taxes from higher income individuals tax brackets are often cited as a range of income with an associated percentage for example for 2023 federal income taxes taxpayers who earn between 44 726 and 95 375 are in the 22 tax bracket this means their earnings between these two amounts are assessed at a 22 tax rate earnings below 44 726 are assessed at a lower rate and earnings above 95 375 are assessed at a higher rate 16as an example an individual who is single and earns 80 000 annually falls into the 22 marginal tax bracket 17 this means the taxpayer would be responsible for 12 908 in taxes for 2023 the breakdown for which is illustrated in the chart below because of the varying tax brackets a taxpayer will usually have an effective tax rate different from their highest tax bracket the marginal tax rate is the additional tax paid for every extra dollar of income for example a 10 marginal tax rate means that 10 of every next dollar earned will be taken as tax 19however note that while the marginal rate is 22 the effective tax rate is 16 1 this figure is arrived at by dividing the total tax bill 12 908 by income 80 000 and multiplying by 100 the effective tax rate is the actual rate the individual ends up paying in taxes to the government 