Understanding U.S. Federal Income Tax Rates: 2023-2024 Overview

In the tax years 2023 and 2024, there are seven federal income tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The applicable rates depend on your taxable income and filing status.

The current U.S. federal tax rates, established by the Tax Cuts and Jobs Act of 2017, will remain unchanged until 2025. However, it's important to note that the income thresholds defining each tax bracket are typically adjusted annually to account for inflation.

These adjustments serve a crucial purpose in preventing 'bracket creep,' where taxpayers might find themselves in a higher tax bracket due to the rising cost of living. By periodically updating the income thresholds, the tax system aims to maintain fairness and avoid unintentional tax increases for individuals. Additionally, these adjustments can be beneficial for individuals whose income has not kept pace with inflation, potentially resulting in lower taxes.

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What are Marginal and Effective Tax Rates?

Marginal Tax Rate:

TThe marginal tax rate refers to the tax rate applied to the last dollar of your taxable income, generally corresponding to your highest tax bracket. For instance, if you are a single filer in 2023 with $35,000 of taxable income, you fall into the 12% tax bracket. Any additional dollar earned would incur a 12% tax. If your taxable income increased to $45,000, most of it would still be taxed at 12%, but the last portion would fall into the 22% tax bracket. Consequently, your marginal tax rate would be 22%.

Effective Tax Rate:

Your effective tax rate is the percentage of your total taxable income that you pay in taxes. To calculate your effective tax rate, divide your total tax owed (found on line 16 of Form 1040) by your total taxable income.

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