Income Tax Brackets: Understanding the Progressive Tax System

Amy Lyons  | 

There is no fair way to tax everyone. However, the effort to tax everyone in a way that permits people to pay taxes and still have the ability to afford the cost of living has resulted in progressive taxation. This system increases taxation amounts in progressive increments, meaning that those who make more pay more in taxes. Tax brackets define which income range pays which rate and how the rates apply progressively to income. In practice, the number of brackets and rates change all the time for both economic and political reasons.

The federal progressive tax system is adjusted yearly by the Internal Revenue Service (IRS) to balance economic inflation with tax provisions. Tax provisions are what people or businesses are expecting to pay in taxes. Without inflation indexing, incomes may enter a higher Federal tax bracket, yet they would not receive any increase in real purchasing power.

This article will focus on understanding tax brackets, the progressive rates for 2018-2019, and calculating which tax bracket your income may place you in.

What Are Tax Brackets?

Tax brackets and tax rates are not interchangeable terms. Each tax bracket houses an individual or family’s income level, and holds a different tax rate. Tax brackets are used to segment income and apply progressive rates per segment until the total amount of income is reached. The purpose of the tax rate (the percent paid on income in the bracket) is to create relief and equity-based on what the taxpayer can afford.

Incomes are taxed to scale. People with lower incomes will pay lower percentages. People with higher incomes will pay larger percentages, but only on each amount of income that has made it into the next tax bracket. Taxes are further organized into brackets and rates by how taxes are filed; single, married (filing jointly or separately), and head of household.

Progressive Tax Rate

Federal income tax rates in the US are broken down into 7 income brackets. Each tax rate is calculated through economic indexing to support what the taxpayer is able to pay.

It is important to note that the tax rates cited for a year are the tax rates used to prepare taxes for that year. You will use the 2018 tax rates to prepare your 2018 taxes in 2019, and you will use the 2019 tax rates to prepare your 2019 taxes in 2020, etc.

Tax rate for 2018 Taxable income brackets
Percentages per total income Filing single, or married but filing separate. Married and filing jointly Head of household
10% $0 – $9,525 $0 – $19,050 $0 – $13,600
12% $9,525 – $38,700 $19,050 – $77,400 $13,600 – $51,800
22% $38,700 – $82,500 $77,400 – $165,000 $51,800 – $82,500
24% $82,500 – $157,500 $165,000 – $315,000 $82,500 – $157,500
32% $157,500 – $200,000 $315,000 – $400,000 $157,500 – $200,000
35% $200,000 < $500,000 $400,000 – $600,000 $200,000 – $500,000
37% Over $500,000 Over $600,000 $500,000

*This table was created using data from the IRS

Tax rate for 2019 Taxable income brackets
Percentages per total income Filing single, or married but filing separate. Married and filing jointly Head of household
10% $0 – $9,700 <$19,400 $13,852
12% $9,700 – $39,475 $19,400 – $78,950 $13,850 – $52,850
22% $39,475 – $84,200 $78,950 – $168,400 $52,850 – $84,200
24% $85,200 – $160,725 $168,400 – $321,450 $84,200 – $160,700
32% $160,725 – $204,100 $321,450 – $408,200 $160,700 – $204,100
35% $204,100 – $510,300 $408,200 – $612,350 $204,100 – $510,300
37% Over $510,300 Over 612,350< $510,300

*This table was created with data from the IRS

How Do Tax Brackets Work?

Taxpayers will fall into the proper tax bracket by the total amount of taxable income they make. A common misconception about Federal taxes is that a person’s total income is taxed by the rate of their income bracket, but the percentage paid in taxes is dependent upon the segments of income that reside in each tax bracket. Those with a taxable income in higher brackets are subject to income tax rates for the amount of income residing in each of the lower tax brackets, thus they may belong to one tax bracket, but they are subject to multiple rates.  

For example: If a single person makes $90,000 in taxable income per year, their percentage breakdown would look as follows using the equation:

  • Top of bracket or total income – bottom of bracket income = amount of income taxed by the tax rate for that bracket.
Tax rate Taxable income bracket Equation Tax amount owed per bracket
10% $0 – $9,700 $9,700 x 0.10 $970
12% $9,700 – $39,474 ($39,474 – $9,700 =

$29,774)

$29,774 x 0.12

$3572.88
22% $39,475 – $84,199 ($84,199 – $39,475 =

$44,724)

$44,724 x 0.22

$9,839.28
24% $85,200 – $160,724 ($90,000 – $85,200 =

4,800)

$1,152
Overall percent of taxes to income = 17%

($15,534.16 ÷ 90,000)

Total amount of taxes owed =$15,534.16

How Do You Know What Tax Bracket You Are In?

Preparing for tax day (typically April 15) throughout the year may alleviate surprise or stress after compiling taxes and discovering unforeseen debt. Knowing what tax bracket you are in and how you will choose to file can help you predict the total amount of taxes you will owe.

You can find your tax bracket by anticipating how you will file, and then compiling the total income for you and/or your family. You can then find your total tax rate by segmenting your income into each tax bracket and looking up the tax amount owed for each bracket. By adding all of the tax amounts per segmented bracket, you will find the total tax owed for your income. Dividing your total income from the total tax amount you owe will produce the percent of your income you owe for your taxes.

Use the IRS Withholding Calculator to ensure you are withholding the proper amount on your employment tax documents.


Image Source: https://depositphotos.com/