Tax brackets: How they determine your taxes

Just because you fall into a high tax bracket doesn't mean all your income is taxed at the bracket. Here's how it works.

Zack Sigel 1600

Zack Sigel

Published March 6, 2019

info
Advertising Disclosure

To determine your tax rate, the Internal Revenue Service (IRS) uses a series of ranges that represent increasingly higher amounts of income. These are called tax brackets. For every dollar of income you earn that falls into each bracket, you owe a percentage of that dollar in taxes.

There are seven tax brackets, with each range picking up where the previous range left off. If your income exceeds the range in a lower bracket, the remaining amount of income will be taxed at the rate in the next bracket, and so on. This is called progressive taxation.

Only the portion of your income that falls into each bracket is taxed at that bracket's tax rate. The highest bracket your income falls into without exceeding it represents your marginal tax rate. The IRS uses different sets of tax brackets for each type of filing status, allowing for more income to be taxed at a lower rate if your filing status qualifies.

There are also different tax rates for capital gains as well as for people who are subject to the alternative minimum tax, which is usually only assessed on certain high-net-worth taxpayers.

Read on:

How tax brackets determine your taxes

When you earn an income, you're required to pay taxes on it. But you can reduce your taxable income — the amount of income you can be taxed on — by claiming certain tax deductions.

Most people claim the standard deduction, which, as of 2018, reduces your taxable income by between $12,000 and $24,000, depending on your filing status. Other taxpayers with a more complicated tax profile may itemize their deductions and potentially deduct even more.

Your taxable income is the amount used to determine which tax brackets you fall into.

For example, if you earned $100,000 and claim $15,000 in deductions, then your taxable income is $85,000. That $85,000 happens to fall into the first four of the seven tax brackets, meaning that portions of it are taxed at different rates.

2018 tax brackets

The 2018 tax brackets were used for the tax rates you paid in 2018. Most people already have their taxes withheld from their paychecks by their employer. Other people, such as independent contractors, had to make periodic estimated tax payments based on their income.

When you file your tax return in 2019, you'll figure out if you paid enough tax in 2018 or if you paid too much. The former results in a tax bill for the amount you owe, and the latter results in a tax refund for the amount you overpaid.

While these tax brackets can help you determine what your tax rates for 2018 should've been, they're not the whole story. Many people can benefit from additional personal allowances, such as the child tax credit, that they may not have known to claim in 2018.

Additionally, please note that these tax brackets are for federal taxes only. You'll also be responsible for state and local taxes, and each state may use different tax brackets and rates.

Filing status: single

Tax rateIncome rangeTotal maximum tax
You owe 10% on every dollar earned between$0 and $9,525$952.50
Plus, you owe 12% on every dollar earned between$9,525 and $38,700$4,453.50
Plus, you owe 22% on every dollar earned between$38,700 and $82,500$14,089.50
Plus, you owe 24% on every dollar earned between$82,500 and $157,500$32,089.50
Plus, you owe 32% on every dollar earned between$157,500 and $200,000$45,689.50
Plus, you owe 35% on every dollar earned between$200,000 and $500,000$150,689.50
Plus, you owe 37% on every dollar above$500,000$150,689.50 + 37 cents for every dollar of income above $500,000

Filing status: married filing jointly or qualifying widower

Tax rateIncome rangeTotal maximum tax
You owe 10% on every dollar earned between$0 and $19,050$1,905.00
Plus, you owe 12% on every dollar earned between$19,050 and $77,400$8,907.00
Plus, you owe 22% on every dollar earned between$77,400 and $165,000$28,179.00
Plus, you owe 24% on every dollar earned between$165,000 and $315,000$64,179.00
Plus, you owe 32% on every dollar earned between$315,000 and $400,000$91,379.00
Plus, you owe 35% on every dollar earned between$400,000 and $600,000$161,379.00
Plus, you owe 37% on every dollar above$600,000$161,379.00 + 37 cents for every dollar of income above $600,000

Filing status: married filing separately

Tax rateIncome rangeTotal maximum tax
You owe 10% on every dollar earned between$0 and $9,525$952.50
Plus, you owe 12% on every dollar earned between$9,525 and $38,700$4,453.50
Plus, you owe 22% on every dollar earned between$38,700 and $82,500$14,089.50
Plus, you owe 24% on every dollar earned between$82,500 and $157,500$32,089.50
Plus, you owe 32% on every dollar earned between$157,500 and $200,000$45,689.50
Plus, you owe 35% on every dollar earned between$200,000 and $300,000$80,689.50
Plus, you owe 37% on every dollar above$300,000$80,689.50 + 37 cents for every dollar of income above $300,000

Filing status: head of household

Tax rateIncome rangeTotal maximum tax
You owe 10% on every dollar earned between$0 and $13,600$1,360.00
Plus, you owe 12% on every dollar earned between$13,600 and $51,800$5,944.00
Plus, you owe 22% on every dollar earned between$51,800 and $82,500$12,698.00
Plus, you owe 24% on every dollar earned between$82,500 and $157,500$30,698.00
Plus, you owe 32% on every dollar earned between$157,500 and $200,000$44,298.00
Plus, you owe 35% on every dollar earned between$200,000 and $500,000$149,198.00
Plus, you owe 37% on every dollar above$500,000$149,298.00 + 37 cents for every dollar of income above $500,000

2019 tax brackets

The 2019 tax brackets determine your tax rates for income earned in 2019. Your employer may have already adjusted your withholding to account for the new tax brackets, so if your income remains the same then your take-home pay should be slightly higher.

If you're an independent contractor, you can use these tax brackets to help you make estimated tax payments throughout the year.

When you file your 2019 tax return in April 2020, you'll indicate how much tax you paid in 2019, and it should reflect these updated brackets plus any credits or deductions you were eligible to claim in 2019. To make sure you're paying the right amount of 2019 income tax, check that your withholding is accurate and that you're receiving the right personal allowances throughout the year.

Filing status in 2019: single

Tax rateIncome rangeTotal maximum tax
You owe 10% on every dollar earned between$0 and $9,700$970.00
Plus, you owe 12% on every dollar earned between$9,700 and $39,475$4,543.00
Plus, you owe 22% on every dollar earned between$39,475 and $84,200$14,382.50
Plus, you owe 24% on every dollar earned between$84,200 and $160,725$32,748.50
Plus, you owe 32% on every dollar earned between$160,725 and $204,100$46,628.50
Plus, you owe 35% on every dollar earned between$204,100 and $510,300$153,798.50
Plus, you owe 37% on every dollar above$510,300$153,798.50 + 37 cents for every dollar of income above $510,300

Filing status in 2019: married filing jointly or qualifying widower

Tax rateIncome rangeTotal maximum tax
You owe 10% on every dollar earned between$0 and $19,400$1,940.00
Plus, you owe 12% on every dollar earned between$19,400 and $78,950$9,086.00
Plus, you owe 22% on every dollar earned between$78,950 and $168,400$28,765.00
Plus, you owe 24% on every dollar earned between$168,400 and $321,450$65,497.00
Plus, you owe 32% on every dollar earned between$321,450 and $408,200$93,257.00
Plus, you owe 35% on every dollar earned between$408,200 and $612,350$164,709.50
Plus, you owe 37% on every dollar above$612,350$164,709.50 + 37 cents for every dollar of income above $612,350

Filing status in 2019: married filing separately

Tax rateIncome rangeTotal maximum tax
You owe 10% on every dollar earned between$0 and $9,700$970.00
Plus, you owe 12% on every dollar earned between$9,700 and $39,475$4,543.00
Plus, you owe 22% on every dollar earned between$39,475 and $84,200$14,382.50
Plus, you owe 24% on every dollar earned between$84,200 and $160,725$32,748.50
Plus, you owe 32% on every dollar earned between$160,725 and $204,100$46,628.50
Plus, you owe 35% on every dollar earned between$204,100 and $306,175$82,354.75
Plus, you owe 37% on every dollar above$306,175$82,354.75 + 37 cents for every dollar of income above $306,175

Filing status in 2019: head of household

Tax rateIncome rangeTotal maximum tax
You owe 10% on every dollar earned between$0 and $13,850$1,385.00
Plus, you owe 12% on every dollar earned between$13,850 and $52,850$6,065.00
Plus, you owe 22% on every dollar earned between$52,850 and $84,200$12,962.00
Plus, you owe 24% on every dollar earned between$84,200 and $160,700$31,322.00
Plus, you owe 32% on every dollar earned between$160,700 and $204,100$45,210.00
Plus, you owe 35% on every dollar earned between$204,100 and $510,300$152,380.00
Plus, you owe 37% on every dollar above$510,300$152,380.00 + 37 cents for every dollar of income above $510,300
Policygenius Image

Ready to file your taxes? Our partner can help.

Taxes don't have to be taxing. Find out how to file your returns without the hassle.

Capital gains taxes

Net capital gains are the amount of profit you make after selling an asset at a higher price than you paid for it, whether it's a house or some cryptocurrency, after accounting for net capital losses. There are two types of capital gains: short-term capital gains and long-term capital gains.

Short-term capital gains result from an asset you sold after owning it for less than one year. Short-term capital gains are taxed the same way as your usual taxes, using the tax brackets relevant to your filing status as if the gains were regular income.

Long-term capital gains result from an asset you sold after owning it for more than one year. Using a different set of tax brackets, the IRS taxes these net capital gains at much more favorable rates that ordinary income.

Long-term capital gains taxes by filing status, 2018

Taxes you paid in 2018, to be filed on your 2019 tax return.

Tax RateIndividualMarried filing separatelyMarried filing jointly and qualifying widowerHead of household
0%$0 to $38,600$0 to $38,600$0 to $77,200$0 to $51,700
15%$38,600 to $425,800$38,600 to $239,500$77,200 to $479,000$51,700 to $452,400
20%$425,800 and up$239,500 and up$479,000 and up$452,400 and up

Long-term capital taxes by filing status, 2019

Taxes you'll pay in 2019, to be filed on your 2020 tax return.

Tax RateIndividualMarried filing separatelyMarried filing jointly and qualifying widowerHead of household
0%$0 to $39,375$0 to $39,375$0 to $78,750$0 to $52,750
15%$39,375 to $434,550$39,375 to $244,425$78,750 to $488,850$52,750 to $461,700
20%$434,550 and up$244,425 and up$488,850 and up$461,700 and up

Note that you only have to pay capital gains taxes on realized gains, which is the value you receive after selling or exchanging an asset. If you hold onto an asset and it increases in value, but you don't sell it, then the asset's new value is considered an unrealized gain and isn't subject to tax.

Capital losses

Capital losses occur when you sell an asset for less than you paid for it. You can deduct up to $3,000 of a capital loss per year (or $1,500 if your filing status is married filing separately) from your taxable income. If a capital loss exceeds the $3,000 deduction, you can carry over the excess amount and deduct it the next year, and so on until you've deducted the full amount of the capital loss.

Dividends

Dividends are payments companies make to their shareholders. Even if you own just a little bit of stock, you may be paid a dividend. Dividends are taxed at the same rate as short-term capital gains.

Getting taxed on a bonus

Bonuses are not taxed differently than ordinary income. However, your bonus may appear to be taxed at a higher rate when you first receive it. That's because bonuses are considered supplemental wages, which include everything from commissions to overtime to prizes from your employer. Supplemental wages are subject to a different set of withholding rules than those that apply to your regular wages.

For the most part, supplemental wages are taxed at a flat 22%, down from 25% in years prior to 2018. But when you file your tax return, the bonus is counted along with the sum total of all your income that year. If the 22% tax rate resulted in you paying too much tax, part of it could be refunded to you after you file.

Extra income from a bonus can go a long way. We recommend putting as much as you can in a high-yield savings account to save for a rainy-day fund or emergency (such as an unexpectedly high tax bill).

Policygenius Image

Want to learn more? Our partner can help.

Taxes can be perplexing. Our partner can help you make sense of it all.

Tax brackets and the marriage penalty

When people get married, their combined income would put them over the tax brackets they were in when unmarried. Because of this, the IRS uses a separate set of tax brackets for married couples filing joint returns that allows higher levels of combined income to be taxed at lower rates.

This tax benefit works really well for couples at different levels of income. If you earn $250,000 per year and your spouse earns $50,000 per year, if you file a joint return then your marginal tax rate for $300,000 of combined income is only 24%. It would've been 35% if you'd filed as an individual. See the rates tax brackets for each filing status above.

But if couples earn the same level of income, in some cases they may pay a so-called marriage penalty. The marriage penalty isn't a real penalty; it's a quirk of the progressive taxation system that occurs when each spouse is individually in the same marginal tax bracket and combining their income pushes them into the next highest bracket.

The Tax Cuts and Jobs Act mostly mitigated the marriage penalty. That's because the maximum levels of income for married couples filing jointly in each tax bracket are now double the levels for individuals. The one exception is the highest tax bracket, which in 2018 was $500,000 for individual filers ($510,300 for 2019) and $600,000 for married people filing jointly ($612,350 for 2019).

Alternative minimum tax rate

Many wealthier individuals are able to take advantage of tax deductions that simply don't apply to individuals with lower incomes. That means many wealthy people could pay a much lower tax rate as a proportion of their income than less-wealthy people.

For that reason, the IRS uses a special rule called the alternative minimum tax (AMT) for people who earn above a certain income. The effect of the AMT is to oblige people who claim a lot of personal allowances to pay at least a minimum amount of tax.

In effect, two income calculations are run: one with all your usual deductions applied, and another that removes most deductions from the calculation and applies an exemption -- the AMT exemption -- instead. If your tax rate under the second calculation is higher, then you have to pay the AMT on the amount of income in excess of the first calculation.

If you're subject to the AMT, you have to pay it in addition to your regular tax. Because of this, the AMT rate is usually lower than your marginal tax rate at similar levels of income.

Am I subject to the AMT?

To determine whether you pay the AMT, the IRS first calculates your tentative minimum tax, which is based on your income minus the AMT exemption, before any deductions are applied.

In 2019, the AMT exemption for individuals is:

  • $55,850 for people with filing status married filing separately
  • $71,700 for people with filing status single or head of household
  • $111,700 for people with filing status married filing jointly or qualifying widower

For 2018, the AMT exemption for individuals was:

  • $54,700 for people with filing status married filing separately
  • $70,300 for people with filing status single or head of household
  • $109,400 for people with filing status married filing jointly or qualifying widower

If you owe more using the tentative minimum tax calculation than the regular tax calculation (which includes your usual deductions, but not the AMT exemption), then you have to pay AMT on the excess.

Use the following table to determine your tax rate according to the AMT. The income ranges represent your income minus the AMT exemption plus a handful of AMT-specific tax deductions.

AMT rates for 2018

For all filing statuses except married filing separately.

Tax rateIncome range
You owe 26% on every dollar earned between$0 and $191,500
Plus, you owe 28% on every dollar earned above$191,500

For filing status married filing separately.

Tax rateIncome range
You owe 26% on every dollar earned between$0 and $95,750
Plus, you owe 28% on every dollar earned above$95,750

AMT rates for 2019

For all filing statuses except married filing separately.

Tax rateIncome range
You owe 26% on every dollar earned between$0 and $194,800
Plus, you owe 28% on every dollar earned above$194,800

For filing status married filing separately.

Tax rateIncome range
You owe 26% on every dollar earned between$0 and $97,400
Plus, you owe 28% on every dollar earned above$97,400

Policygenius’ editorial content is not written by a certified financial planner or advisor. It’s intended for informational purposes only and should not be considered legal, financial, or investment advice. Consult a professional to learn what financial products are right for you.

This post contains references to products or services from one or more of Policygenius' advertisers or partners. While these codes earn us a small fee at no additional cost to you, they do not influence editorial content and we only refer products we love.