Understanding Tax Brackets: How Progressive Taxation Really Works
Key Takeaway
Earning more money never results in less take-home pay. Tax brackets work on a marginal system where only the income within each bracket is taxed at that bracket's rate. Moving to a "higher tax bracket" only affects the dollars earned above that threshold, not your entire income.
What Are Tax Brackets?
Tax brackets are income ranges that determine what percentage of your income you'll pay in federal income tax. The United States uses a progressive tax system, which means that as you earn more money, the tax rate on your additional income increases—but only on that additional income.
Think of tax brackets like climbing stairs. Each step up represents a new bracket, and you only pay the higher rate on the income that "steps" into that bracket, not on all the income you earned on the steps below.
2025 Federal Income Tax Brackets
Here are the federal income tax brackets for 2025:
Single Filers
| Tax Rate | Income Range |
|---|---|
| 10% | $0 to $11,925 |
| 12% | $11,925 to $48,475 |
| 22% | $48,475 to $103,350 |
| 24% | $103,350 to $197,300 |
| 32% | $197,300 to $250,525 |
| 35% | $250,525 to $626,350 |
| 37% | Over $626,350 |
Married Filing Jointly
| Tax Rate | Income Range |
|---|---|
| 10% | $0 to $23,850 |
| 12% | $23,850 to $96,950 |
| 22% | $96,950 to $206,700 |
| 24% | $206,700 to $394,600 |
| 32% | $394,600 to $501,050 |
| 35% | $501,050 to $751,600 |
| 37% | Over $751,600 |
Head of Household
| Tax Rate | Income Range |
|---|---|
| 10% | $0 to $17,000 |
| 12% | $17,000 to $64,850 |
| 22% | $64,850 to $103,350 |
| 24% | $103,350 to $197,300 |
| 32% | $197,300 to $250,500 |
| 35% | $250,500 to $626,350 |
| 37% | Over $626,350 |
đźš« Common Myth: "If I earn more, I'll move into a higher tax bracket and take home less money"
This is FALSE! This is the most common misconception about tax brackets. Only the income that falls within a higher bracket is taxed at that rate, not your entire income. You will always take home more money when you earn more, even if you "move up" a bracket.
How Tax Brackets Actually Work: A Real Example
Let's say you're single and earn $60,000 per year in 2025. Here's how your federal income tax is calculated:
Example: $60,000 Single Filer
Step 1: Apply the standard deduction ($15,000 for single filers in 2025)
Step 2: Calculate tax for each bracket
Total Federal Income Tax: $1,192.50 + $3,969.00 = $5,161.50
Effective Tax Rate: $5,161.50 Ă· $60,000 = 8.6%
Notice that even though you're "in the 12% tax bracket," your effective tax rate is only 8.6% because the first portion of your income was taxed at 10%.
What Happens When You Get a Raise?
Let's say you get a $10,000 raise, bringing your salary to $70,000. Many people worry this will hurt them. Let's see what really happens:
After a $10,000 Raise to $70,000
Step 1: Apply the standard deduction
Step 2: Calculate tax for each bracket
Total Federal Income Tax: $1,192.50 + $4,386.00 + $1,435.50 = $7,014.00
Difference from before: $7,014.00 - $5,161.50 = $1,852.50 more in taxes
Net increase in take-home: $10,000 (raise) - $1,852.50 (additional tax) = $8,147.50 more
You moved into the 22% bracket, but you still take home $8,147.50 more per year! Only the $6,525 that fell into the 22% bracket was taxed at that rate.
Understanding Marginal vs. Effective Tax Rates
Marginal Tax Rate
Your marginal tax rate is the tax rate you pay on your last dollar of income. In the example above, after the raise, your marginal rate is 22% because that's the bracket your highest income falls into.
Effective Tax Rate
Your effective tax rate is the overall percentage of your income that goes to taxes. It's calculated by dividing your total tax by your total income. This rate is always lower than your marginal rate because of the progressive nature of tax brackets.
Marginal vs. Effective: $70,000 Example
Marginal Tax Rate: 22% (highest bracket you're in)
Effective Tax Rate: $7,014 Ă· $70,000 = 10.0%
Even though you're "in the 22% bracket," you only pay 10% of your total income in federal taxes.
Why Tax Brackets Are Designed This Way
The progressive tax system is designed to ensure that:
- Lower earners pay a smaller percentage of their income, since they have less disposable income
- Higher earners contribute more in proportion to their ability to pay
- There's no "cliff effect" where earning more suddenly costs you money
- The tax burden is distributed fairly across income levels
State Taxes Work Similarly
Most states with income tax also use progressive tax brackets, though some use a flat rate. For example:
- Progressive states: California, New York, Hawaii, Oregon (rates increase with income)
- Flat tax states: Colorado (4.4%), Illinois (4.95%), Massachusetts (5.0%)
- No income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming
State taxes are calculated separately and use their own bracket structures, which you can explore using our take-home pay calculator.
Calculate Your Actual Take-Home Pay
Now that you understand how tax brackets work, use our calculator to see your real take-home pay after federal taxes, FICA, and state taxes.
Try the CalculatorFrequently Asked Questions
Q: Can a raise ever result in less take-home pay?
A: No, not from federal income tax brackets alone. You might see slightly less take-home in specific situations involving:
- Loss of tax credits or deductions that phase out at higher incomes (like Earned Income Tax Credit)
- Loss of government benefits that have income thresholds
- Increased Medicare surtax for high earners (0.9% additional on income over $200,000)
But the tax brackets themselves never cause you to take home less by earning more.
Q: Why do I see more taxes taken from my bonus?
A: Bonuses are often taxed using the "supplemental wage" method, where a flat 22% (or 37% for bonuses over $1 million) is withheld. This is just withholding—when you file your tax return, your bonus is taxed at your regular marginal rates.
Q: Do tax brackets change every year?
A: Yes, the IRS adjusts bracket thresholds annually for inflation. The rates themselves (10%, 12%, 22%, etc.) usually stay the same, but the income ranges change.
Q: What's the difference between a tax deduction and a tax credit?
A: A tax deduction (like the standard deduction) reduces your taxable income. A tax credit directly reduces the amount of tax you owe, dollar-for-dollar. Credits are generally more valuable than deductions.
Key Takeaways
- Tax brackets are marginal—only income within each bracket is taxed at that rate
- Moving to a higher bracket only affects the dollars earned above that threshold
- Your effective tax rate is always lower than your marginal rate
- Earning more always means taking home more (from federal tax brackets alone)
- Understanding this can help you make better financial decisions about raises, bonuses, and career moves
Ready to Calculate Your Take-Home Pay?
Use our calculator to see exactly how much you'll take home after all federal, state, and FICA taxes.
Calculate My Take-Home Pay