How Tax Brackets Work
The US uses progressive taxation — your income is split across brackets, and each portion is taxed at its own rate. Moving into a higher bracket does not tax all your income at the higher rate; only the dollars above the threshold.
2024 Federal Tax Brackets (Single)
- 10% on income up to $11,600
- 12% on $11,601 to $47,150
- 22% on $47,151 to $100,525
- 24% on $100,526 to $191,950
- 32% on $191,951 to $243,725
- 35% on $243,726 to $609,350
- 37% on income over $609,350
Marginal vs Effective Rate Example
If you earn $60,000 (single, no deductions for simplicity):
- First $11,600 taxed at 10% = $1,160
- $11,601-$47,150 taxed at 12% = $4,266
- $47,151-$60,000 taxed at 22% = $2,827
- Total tax: $8,253
- Marginal rate: 22% (your highest bracket)
- Effective rate: $8,253 ÷ $60,000 = 13.8% (your actual average rate)
Standard Deduction (2024)
- Single: $14,600
- Married filing jointly: $29,200
- Head of household: $21,900
The standard deduction reduces your taxable income before brackets are applied. A single filer earning $60,000 has a taxable income of $45,400, dropping their effective rate further.
Common Ways to Reduce Taxable Income
- 401(k)/403(b) contributions: Up to $23,000/year ($30,500 if 50+) reduces taxable income dollar-for-dollar
- Traditional IRA: Up to $7,000/year ($8,000 if 50+) may be deductible depending on income and employer plan
- HSA contributions: Triple tax advantage — deductible going in, grows tax-free, withdrawals tax-free for medical expenses. $4,150 single / $8,300 family limit
- Student loan interest: Deduct up to $2,500/year
- Itemize deductions: Mortgage interest, state/local taxes (up to $10,000 SALT cap), and charitable donations. Only worthwhile if total exceeds the standard deduction
Common Tax Misconceptions
- "A raise can push me into a higher bracket and I'll take home less" — False. Only the income above the new bracket threshold is taxed at the higher rate. A raise always increases take-home pay
- "I should decline overtime to stay in my bracket" — False, for the same reason. More gross pay always means more net pay
- "My tax bracket is my tax rate" — Your marginal rate applies only to your last dollar. Your effective rate (actual taxes ÷ total income) is always lower