Tax Brackets: Rates, Definition and How to Calculate

When preparing their financial information for tax season, it's important for taxpayers to have an idea of how much they'll be paying. Even if your income didn't change, the amount you're paying in taxes may.

Several factors affect your taxes - not just your job and income, but your family situation as well.

The way this is all broken up to determine taxes is known as a tax bracket. Knowing what tax bracket you're in and how they've changed in the past year can help you prepare for tax day.

So, what are tax brackets, and can you use them to calculate how much you'll owe?

What Are Tax Brackets?

A tax bracket is the income range that determines the rate at which you will be taxed. Though the tax rate is an important part of understanding tax brackets, the rate is not the same thing as the bracket.

Tax brackets, as created by the Internal Revenue Service (IRS), are meant to steadily increase the tax rate the wealthier a person is. Someone making over $500,000 a year is in a significantly higher tax bracket than someone who makes $15,000 a year.

Yet, it can also be a little misleading. If you make over $500,000, you're in a tax bracket with a much higher rate, but that doesn't mean your whole income is being taxed at that rate. Rather, the tax brackets indicate that that level of income will be taxed that much. So, any money made over $500,000 in a year would be taxed at the highest percentage. But every dollar made before that is still in the lower tax brackets, and as such is taxed at a lower percentage.

Still, even if a wealthy person isn't getting their entire income taxed, that doesn't stop them from seeking workarounds, like tax deductions, whenever possible to limit what counts as their taxable income and keep them in a lower tax bracket.

In addition to your yearly taxable income, tax brackets will also effect how much you pay in taxes on any capital gains made in a given year.

When necessary, the IRS will change up tax brackets to account for inflation. This can mean changing the tax rate of a bracket, or the amount of yearly taxable income that puts a person or household in that bracket.

2018-2019 Tax Brackets Based on Income

Because the IRS changes tax brackets info so often, you may not know what the new tax brackets are until it's too late. For 2018-19, there are currently seven different tax brackets.

The income that puts you in a certain tax bracket will depend on how you file, whether as single, a married couple filing jointly, a married person filing separately, or someone filing as the head of a household. What each of them does share in common, though, are the same tax rates per bracket.

For 2018-2019, from lowest to highest, the tax brackets are broken into the following tax rates:

  • 10%
  • 12%
  • 22%
  • 24%
  • 32%
  • 35%
  • 37%

Tax Brackets Filing Jointly vs. Single

The biggest difference in how you're placed in a tax bracket is whether you are single or have other people to consider.

If you are an individual with no dependents or spouse, the lowest of the seven tax brackets goes from a yearly income range of $0 to $9,525. That bracket pays a tax rate of 10%. The highest of the tax brackets is for anyone making more than $500,000 a year in taxable income; anything above that is taxed at a rate of 37%.

For married people jointly filing their taxes, the income range is usually doubled. For example, whereas the lowest tax bracket for single people is $0-$9,525, for joint married couples it's $0-$19,050. At the highest end of it, though, that tapers off; income over $600,000 gets taxed at 37%.

Here are all the tax brackets for both single people and jointly filing married couples.

Tax Brackets Filing Separately

The IRS often offers tax credits and other exemptions to married couples who jointly file their taxes together, but some couples still file separately. There are several reasons to do this, like keeping your financial liabilities separate from your spouse's.

Many of these tax brackets are the same range of income as a single person filing, the difference being in the two highest tax brackets; for the highest one, the 37% tax rate is for anything made over $300,000 - half of what the highest tax bracket is for joint couples.

Here are all the tax brackets for married people filing separately.

Tax Brackets Filing as Head of Household

Filing taxes as the head of a household is for taxpayers who aren't married but still have a dependent. If you have a qualifying child or other dependent, are considered unmarried (are single, divorced, or legally separated by the last day of eligibility to file taxes) and pay for over half of the costs of household expenses, you can qualify for head of household status.

Some of the tax brackets for head of household are similar to a single person's tax brackets. The lowest tax brackets offer lower tax rates for those struggling to make ends meet while caring for a dependent. The lowest tax bracket for a single person tops out at $9,525; for the head of a household, it is $13,600.

Here are all the tax brackets for heads of households.

How to Calculate Your Taxes Using Tax Brackets

With all this information, you may be able to get a better idea of how much you will be taxed for your yearly income.

Let's use an example. Let's say you're a single person who makes $65,000 a year. The first $9,525 of that is taxed 10%, or $952.50. The next bracket is $9,526-$38,700 and it is taxed 12% to give us an additional $3,501. The rest of your income is in the next bracket and is taxed 22%; up to $65,000, that would be $5,786. $5,786 + $3,501 + 952.50 = $10,239.50 being taxed, which is a total of 15.75% of your yearly income.

Now let's say you're a married couple filing jointly, and your combined yearly income is $450,000. As the yearly income increases, you'll owe the following for each tax bracket:

  • 10% from $0-$19,050, or $1,905
  • 12% from $19,051-$77,400, or $7,002
  • 22% from $77,401-$165,000, or $19,272
  • 24% from $165,001-$315,000, or $36,000
  • 32% from $315,001-$400,000, or $27,200
  • 35% from $400,001-$450,000, or $17,500

This adds up to $108,879, or about 24.2% of their taxable income - quite a bit lower than the 35% tax bracket their income goes up to.

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