Wilson Financial Services Inc.

(859) 824-9422

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 2023 tax year, had a taxable income of $200,000. Each dollar over $190,750 – or $9,250 – would fall into the 24% federal income tax bracket. However, the couple's total federal tax would be $34,800 – about 17.4% of their adjusted gross income.

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

2023 Federal Income Tax Brackets

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

For the 2023 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, March 8, 2022
2. IRS.gov, 2023
3. IRS.gov, 2023

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.

 

Related Content

Money Draining Food Myths

Money Draining Food Myths

These food myths will really put a drain on your wallet.

What Is a Roth 401(k)?

What Is a Roth 401(k)?

Roth 401(k) plans combine features of traditional 401(k) plans with those of a Roth IRA.

When Special Care Is Needed: The Special Needs Trust

When Special Care Is Needed: The Special Needs Trust

A special needs trust helps care for a special needs child when you’re gone.

 

Have A Question About This Topic?







Thank you! Oops!

Social Security Benefits: How Much Will I Receive

Calculating your potential Social Security benefit is a three-step process.

Buying vs. Leasing a Car

Whatever your relationship with your car, it may eventually come time for a new one. Familiarize yourself with your options.

Is a SEP-IRA Right for Your Business?

For some, the idea of establishing a retirement strategy evokes worries about complicated reporting and administration.

View all articles

Bi-Weekly Payments

This calculator estimates the savings from paying a mortgage bi-weekly instead of monthly.

Federal Income Tax

Use this calculator to estimate your income tax liability along with average and marginal tax rates.

Home Mortgage Deduction

Use this calculator to assess the potential benefits of a home mortgage deduction.

View all calculators

Investment Strategies for Retirement

Investment tools and strategies that can enable you to pursue your retirement goals.

5 Smart Investing Principles

Principles that can help create a portfolio designed to pursue investment goals.

Protecting Those Who Matter Most

The importance of life insurance, how it works, and how much coverage you need.

View all presentations

The Cost of Procrastination

Procrastination can be costly. When you get a late start, it may be difficult to make up for lost time.

The Rule of 72

Do you know how long it may take for your investments to double in value? The Rule of 72 is a quick way to figure it out.

Surprise! You’ve Got Money!

Here’s a quick guide to checking to see if you have unclaimed money.

View all videos