A tax bracket simply refers to the tax rate for a specific amount of income such as 20% taxes for the first $30,000 of income. Tax brackets are used by the Federal government and many states in their income tax systems. The United States Federal tax system is a progressive tax system, which means that the taxation progressively increases as a taxpayer’s income grows. Low incomes fall into the tax brackets with lower tax rates, while the higher incomes fall into brackets with higher tax rates. The tax bracket only applies to a specific range of income, not necessarily to all of the person’s income. For example, a single filing person with $20,000 of income in 2021 would be taxed 10% for the first $9,950 and 12% for the next $10,050, not 12% for the whole $20,000.
As of 2021, there are currently seven federal tax brackets in the United States, ranging from 10% to 37%.
Single filers for tax year 2021 who have less than $9,950 in taxable income are subject to the 10% income tax rate, which is the lowest bracket. Every dollar the taxpayer earned between $9,950 and $40,525 would be taxed at 12%, which is the next bracket. Earnings between $40,525 and $86,375 would be taxed at 22%, the third bracket. Earnings between $86,375 and $164,925 would be taxed at 24%, the fourth bracket. The fifth bracket is taxed at 32% for earnings between $164,925 to $209,425. The sixth bracket is taxed at 35% for earnings between $207,351 to $523,600. And the last bracket is taxed at 37% for any earnings higher than $523,600.
Married filers whose income is $19,900 or less are subject to a 10% income tax rate. Every dollar earned between $19,900 and $81,050 would be taxed at 12%. Earnings between $81,050 and $172,750 would be taxed at 22%. Earnings between $172,750 and $329,850 would be taxed at 24%. The fifth bracket would be taxed at 32% for earnings between $329,850 and $418,850. The sixth bracket is taxed at 35% for earnings between $418,850 and $628,300. All income over $628,300 would be taxed at 37%.
[Last updated in October of 2021 by the Wex Definitions Team]