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Sometimes, in fact, every time, it’s difficult to find answers about the federal tax brackets or income tax rates! Sounds relatable? Indeed!
Well, tax brackets 2024 is all about different tax rate types, including capital gains tax rate, dividend tax rates, Social Security tax rate, marginal tax rate, Medicare tax rate, and more.
Need help determining under which federal tax brackets you fall or how to save more with income tax rates for 2024? We’ve got you covered with attention to detail.
Time to roll down!
Key Takeaways
- The tax rates for 2024 remain unchanged at 10%, 12%, 22%, 24%, 32%, 35% and 37% under the seven federal income tax brackets and rates.
- Deductions lower your taxable income, while credits contribute to decreasing your taxes dollar for dollar.
- Higher incomes come under tax brackets that have higher income tax rates, while low income falls into lower income tax rate brackets.
As we march forward in this guide, we’ll learn:
How Federal Tax Brackets and Tax Rates Work?
Do you also fall under the misconception list where a few or even most of the people mix up when it comes to taxes in the U.S., how the federal income tax system works, and what is the tax rate an individual pays? If so, you’ve set your eyes on the right page, then!
Here, you’ll understand how federal tax brackets and tax rates work.
Let’s start!
Say you got $50,000 in taxable income. Today, that dollar amount comes under the 15 percent bracket. However, this doesn’t imply you need to pay that rate on the full amount of $50,000.
Your federal income tax in the U.S. is calculated via a progressive graduated rate system. In all, making more money? You’ll be taxed more!
In the above, you have seen seven federal income tax brackets and rates. Thus, every bracket comprises a complete range of taxable income, plus the tax rate for every bracket gets higher in a progressive manner.
Let’s say any income you earn within the first bracket range is taxed at that rate. Similarly, when you make an income that exceeds the first bracket even a bit further, it slides into the second bracket.
*Important Note: Only the additional dollars you make just after the first bracket range are taxed at a new rate. This process continues with the increase in your taxable income.
So, in our $70,000 example, some amounts will be taxed at 10%, others will be taxed at 12% percent, and again another section of this big amount gets taxed at 15 percent. Basically, in chunks, the amount is taxed as per the seven income tax brackets.
As you can witness, whatever your high tax rate is, it doesn’t apply to every taxable income of yours. What applies is the ‘portion’ of your income that falls under the highest income tax bracket.
It’s important to understand how federal tax brackets and income tax rates work as these brackets can help you figure out how much money you require to pay annually to the IRS.
Furthermore, whatever amount you pay in taxes is directly proportional to your income; i.e., if your taxable income goes up, the taxes you pay will also increase.
Federal Tax Brackets and Income Tax Rates in 2024-2025
| Tax Rate | For Single Filers | For Head of Household Filers | For Married Couples Filing Together | For Married Couples Filing Separately |
| 10% | $0 – $11,600 | $0 – $16,550 | $0 – $23,200 | $0 – $11,600 |
| 12% | $11,601 – $47,150 | $16,551 – $63,100 | $23,201 – $94,300 | $11,601 – $47,150 |
| 22% | $47,151 – $105,525 | $63,101 – $100,500 | $94,301 – $201,050 | $47,151 – $100,525 |
| 25% | $105,526 – $191,950 | $100,501 – $191,950 | $201,051 – $383,900 | $100,526 – $191,950 |
| 32% | $191,951 – $243,725 | $191,951 – $243,700 | $383,901 – $487,450 | $191,951 – $243,725 |
| 35% | $243,726 – $609,350 | $243,701 – $609,350 | $487,451 – $731,200 | $243,726 – $365,600 |
| 37% | $690,351 or more | $609,351 or more | $731,201 or more | $365,601 or more |
*Important Note: Tax Brackets 2024: These tax brackets apply to income you’ve earned this year and this will be reported on tax returns filed in the year 2025.
Additional Factors Affecting Your Tax Bill
Filing Status
Other than the income part, the taxes you need to pay depend upon your filing status. Do you want to know how? Well, whether you’re filing as an individual, married ones filing separately, a married couple filing together, or the head of the family will affect the amount of income tax you are required to owe.
*Important Note: Your filing status along with taxable income, and enveloping wages will decide the bracket you will fall in.
Tax Deductions
The complications in tax deductions are comparatively high. Depending on your age, filing status, and salary, several taxpayers claim for the standard deduction.
Moreover, you can list your tax deductions by summing up your eligible expenses in detail. A few deductible expenses encompass charitable contributions, medical expenses, and mortgage interest.
It depends on what larger deductions can benefit you, you will be required to either itemize (list down) your deductions or take the standard deduction.
Tax Credits
Contrary to adjustments, tax credits, tax deductions, and exemptions apply to your final tax billing in place of taxable income.
Also, the tax credits are available to taxpayers only in specific conditions; for individuals who have an income below a particular amount, people who have gone for child adoption, and the ones with childcare expenses.
Also, there are tax credits that are related to installing solar panels or any other energy-saving equipment at home, registering yourself in a government health insurance plan, and getting post-secondary education.
This might help you save a few more dollars as some of these above-mentioned tax credits are refundable. It implies that if your credit surpasses your liability criteria, then you’ll receive the difference that will be refunded to you.
Adjustments
To find out your total taxable income amount, you should add your earned income that you’ve earned from your income, wages, tips, and unearned income from sources such as Social Security, dividend payments, and other retirement accounts such as 401(k), Roth account, and more.
Further, you can deduct your adjustments to determine your AGI, i.e., your adjusted gross income. Adjustments to your income envelope include student loan interest payments, moving expenses, and IRA contributions.
Taxable Income
As you know, the federal tax system is a progressive one that usually implies that your tax rate goes up with the increase in your income.
The taxable income amount you have helps in finding out what will be your tax bill that you are required to pay.
Furthermore, Marginal tax rates help you figure out how taxable income is taxed as per the federal income tax rules. It also determines individuals who pay income taxes are categorized into different sections which are known as seven federal tax brackets.
Finally, your income is taxed in every bracket at a particular rate.
Exemptions
After consideration of your adjustments, you will now get through your taxable income money by cutting off your deductions and exemptions.
Moreover, there are personal and dependency exemptions. In personal exemptions, you can claim for yourself and your better half, whereas in dependency exemptions, you claim for your dependents.
Strategies for Managing Your Tax Bill
Here’s the list of tips on how to lower your tax bill:
Start a Business
Any side hustle offers you plenty of tax advantages when it comes to earning a few more dollars or creating new income sources.
There is a deduction of several expenses from your income when you need to invest your time in maintaining your business, thus helping in reducing your total tax obligation.
If some particular requirements are met, even some health insurance premiums are deducted for self-employed individuals.
By strictly following the rules of the IRS, an entrepreneur may also deduct a part of their respective home expenses with the help of home office deduction.
Also, a section of the internet and other important utilities used in your business may be deducted from your income.
Being a good taxpayer, you must manage a business with the goal of making huge profits by claiming such types of deductions.
The IRS further assesses various factors to figure this out.
*Important Note: The SECURE (Setting Every Community Up for Retirement Enhancement) Act, implemented in 2019, offers great tax incentives to employers who choose multiple-employer plans or side businesses.
This legislation also offers retirement options to their employees.
Claim Tax Credits
Tax credits probably offer the best tax management. For example, if your annual income is $50,000, you spend $8,000 of that income on IRS-deductible expenses.
Now what? Well, you need to pay your ordinary tax rate of $42,000, which makes you assume that no money is derived or deduced from long-term capital gains.
For instance, you’re even eligible for one or more tax credits. Let’s say they’re worth $5,000. However, that $5,000 will not reduce your taxable income, and the amount will come directly out of the tax bracket you’re liable to pay the IRS for, which is $42,000. Isn’t it the best perk you could ask for? Indeed, it’s!
Tip: Credits that are associated with business activities, including Work Opportunity Tax Credit, and Disabled Access Credit, can offer your business substantial savings.
Use a Health Savings Account
Employees who hold a high-deductible health insurance plan have the advantage of using a health savings account (HSA) that will help them reduce taxes and put a pillow on their savings account.
Moreover, considering 401(k), HSA contributions that are determined by payroll deduction are kept out from the taxable income of an employee.
The direct contributions to an HSA of individuals are 100% tax-deductible from their income. An employer can match their HSA contributions and these funds can further grow without any requirement to pay taxes on earnings.
*Important Note: HSA’s extra benefit is it helps in making withdrawals that are not taxed when they are used for paying qualified medical expenses.
Invest in Municipal Bonds
For funding obligations to citizens, governments require money. These obligations include public schools and maintenance of safe and high-quality roadways.
Moreover, governments raise this money by selling different securities, namely, munis or municipal bonds.
The advantage of investing in municipal bonds is that you have to hold the bond until maturity and that means you don’t need to pay any federal income tax on the interest. Also, you aren’t required to pay for state and local taxes either.
What’s more? If you’re living in an area where the bond was issued, then these tax-free interest payments help make municipal bonds more advantageous and appealing to investors.
In all, municipal bonds have lower default rates compared to their corporate bond counterparts, and usually, these municipal bonds have to pay lower interest rates. The tax-equivalent yield of municipal bonds makes them much more attractive to investors due to tax benefits.
Tip: The higher the federal income tax bracket, the more your tax-equivalent yield.
Stay Informed About Tax Law Changes
With the changes taking place in tax laws, it’s affecting your financial ecosystem. Thus, it’s essential to stay up-to-date regarding even the microscopic changes happening in tax regulations. To keep yourself informed, you require consulting a tax professional to know how these tax changes will impact you and your business’ financial situation.
You can carefully optimize your taxes when you get proper guidance. Getting the right direction will help you manage your taxes based on the restrictions and opportunities being there in any given tax year.
Optimize Your Retirement Accounts
Making valuable contributions to your retirement account not only offers you a secure future but also provides profitable tax benefits.
You can find alternatives, such as Roth IRAs, Traditional IRAs, employer-sponsored plans, multiple employer plans, SEP IRA, and more. Making contributions to these savings accounts can probably lower your taxable income while improving your financial landscape after retirement.
For example, making $50,000 in 2024 and contributing $5000 to your traditional IRA, then, you can subtract this amount from your taxable income.
Further, it will result in you paying income taxes on the remaining $45,000 (minus any other eligible deductions), plus the $5,000 will remain to increase tax-deferred until you withdraw this amount in your retirement.
Go for Tax-Loss Harvesting
Managing your investment portfolios strategically via tax-loss harvesting can help you balance out capital gains and decrease your overall tax liability.
You need to analyze investments that are making losses and go for harvesting. You can use these investments to counterbalance gains, which will probably result in lowering your tax burden.
When you sell short-term security at a loss, it will offset your capital gain tax amount that you need to pay from selling profit-making short-term assets.
Consequently, it will put restrictions on your short-term capital gains, the gains that are taxed at a higher rate compared to long-term capital gains.
Conclusion
Still, have questions regarding those difficult federal tax brackets and income tax rates for 2024? Our newsletter covers all financial advice from experts that will help you optimize your financial plan to lower your tax liability and put a cushion on your savings account!
Federal Tax Brackets and Income Tax Rates FAQs
What is a marginal tax rate?
The average tax rate means the total tax paid divided by total income. A 10% marginal tax rate is that 10 cents of every dollar you receive as a part of your income would be concluded as tax.
