Tax Read Time: 3 min

Understanding Marginal Income Tax Brackets

By any measure, the tax code is huge. It is over 2,000 pages long, and even longer with footnotes.1

And almost weekly, the Internal Revenue Service publishes a 20- to 50-page bulletin about various aspects of the tax code.2

Fortunately, it's not necessary to wade through these massive libraries to get a basic understanding of how income taxes work. Knowing a few key concepts may provide a solid foundation.

One of the key concepts is marginal income tax brackets.

Taxpayers pay the tax rate in a given bracket only for that portion of their overall income that falls within that bracket's range.

Tax Works

Seeing how marginal income tax brackets work is helpful because it shows the progressive nature of income taxes. It also helps you visualize how your total tax rate can be calculated. But remember, this material is not intended as tax or legal advice. Please consult a tax professional for specific information regarding your individual situation.

How Federal Income Tax Brackets Work

Say a married couple, filing jointly for the 2022 tax year, had a taxable income of $200,000. Each dollar over $178,150 – or $21,850 – would fall into the 24% federal income tax bracket. However, the couple's total federal tax would be $35,671 – about 18% of their adjusted gross income.

This is a hypothetical example used for illustrative purposes only. It assumes no tax credits apply.

2022 Federal Income Tax Brackets

Your federal income tax bracket is determined by two factors: your total income and your tax-filing classification.

For the 2022 tax year, there are seven tax brackets for ordinary income – ranging from 10% to 37% – and four classifications: single, married filing jointly, married filing separately, and head of household.3

1. Investopedia.com, 2021
2. IRS.gov, 2022
3. IRS.gov, 2022

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Share |
 

Related Content

4 Things to Consider While You’re Planning When to Retire

4 Things to Consider While You’re Planning When to Retire

As the decision to retire approaches, you’ll find the choice of when to retire is rarely black and white.

The Business Cycle

The Business Cycle

How will you weather the ups and downs of the business cycle?

A Checklist for When a Spouse or Parent Passes

A Checklist for When a Spouse or Parent Passes

An overview of some fundamental steps when a loved one passes.

 

Have A Question About This Topic?







Thank you! Oops!

Insight to a Maddening Employment Report

Here’s why the August jobs report was particularly maddening.

How Can I Be a Confident Spender in Retirement?

Imagine you’ve been invited to go paragliding. It’s your first time and you’ve bought a top-of-the-line paraglider.

8 Financial Lessons from the Big (and Little) Screen

Financial lessons from movies and TV.

View all articles

Paying Off a Credit Card

Enter various payment options and determine how long it may take to pay off a credit card.

What Is My Risk Tolerance?

This questionnaire will help determine your tolerance for investment risk.

Annuity Comparison

This calculator compares a hypothetical fixed annuity with an account where the interest is taxed each year.

View all calculators

Long-Term-Care Protection Strategies

The chances of needing long-term care, its cost, and strategies for covering that cost.

Your Cash Flow Statement

A presentation about managing money: using it, saving it, and even getting credit.

Managing Your Lifestyle

Using smart management to get more of what you want and free up assets to invest.

View all presentations

Leaving Your Lasting Legacy

Want to do more with your wealth? You might want to consider creating a charitable foundation.

The Latte Lie and Other Myths

Check out this video to begin separating fact from fiction.

Encore Careers: Push Your Boundaries

Ready for retirement? Find out why many are considering encore careers and push your boundaries into something more, here.

View all videos