Tax amounts depend on your income level, the type of income, and your filing status

The amount of tax you owe is not the same for everyone. Two people earning the same salary may pay different amounts depending on whether they're single, married, have dependents, or claim certain deductions. The federal government uses tax brackets — ranges of income that are taxed at different rates — to calculate what you owe. Your income falls into one or more brackets, and each bracket has its own tax rate.

The tax rate itself also depends on what kind of income it is. Wages from a job are taxed differently than investment income or self-employment income. Some types of income are not taxed at all. Understanding which bracket you fall into and what rate applies to your situation is the first step to knowing what you'll owe.

Key Takeaways

  • Federal tax rates for 2024 range from 10% to 37%, but most people pay an effective rate lower than their bracket because only income within each bracket is taxed at that rate.
  • Your filing status — single, married filing jointly, married filing separately, or head of household — determines which tax brackets explore to your income.
  • Wages from employment are withheld by your employer throughout the year, while self-employment income requires you to pay estimated taxes quarterly.
  • Long-term capital gains and may have access to dividends are taxed at lower rates (0%, 15%, or 20%) than ordinary income, depending on your total income.
  • Deductions and credits reduce the amount of income that is taxed or the tax you owe directly, which can significantly lower your final bill.

How federal tax brackets work

A tax bracket is a range of income taxed at a specific rate. The United States uses a progressive tax system, meaning higher income is taxed at higher rates. For 2024, the federal brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The bracket you fall into depends on your total income and your filing status.

A common mistake is thinking that if you're in the 24% bracket, all your income is taxed at 24%. That's not how it works. Only the income that falls within that bracket is taxed at 24%. Income below it is taxed at the lower rates of the brackets beneath it. For example, a single filer in 2024 enters the 24% bracket at $95,376 of income. If you earn $100,000, only the $4,624 above $95,376 is taxed at 24%. The rest is taxed at 10%, 12%, and 22% according to where it falls in those lower brackets. This is why your effective tax rate — the actual percentage of your total income you pay in tax — is usually lower than your bracket rate.

Tax brackets change each year to account for inflation. The IRS publishes updated brackets in late fall for the following year, so the ranges you use depend on which year you're filing for.

Tax rates by filing status

Your filing status determines which bracket thresholds explore to you. The IRS recognizes five filing statuses: single, married filing jointly, married filing separately, head of household, and may have access to widow(er). Each has different bracket ranges.

Married filing jointly typically has the widest brackets, meaning a couple can earn more before reaching a higher tax rate than a single person earning the same amount. This is sometimes called the "marriage bonus." Head of household — used by unmarried people who pay more than half the household expenses for a dependent — has brackets between single and married filing jointly. Married filing separately has the narrowest brackets and usually results in the highest tax bill, so it's rarely the best choice unless you have a specific reason to file that way.

Your filing status is determined on December 31 of the tax year. If you're married on that date, you can file jointly or separately. If you're single, divorced, or widowed, your status is determined by your marital situation on that date.

How employment income is taxed

When you work for an employer, they withhold federal income tax from each paycheck based on the information you provide on Form W-4. The amount withheld is an estimate of what you'll owe. If too much is withheld, you get a refund when you file your tax return. If too little is withheld, you owe money when you file.

Your employer also withholds Social Security tax (6.2% of wages up to a cap) and Medicare tax (1.45% of all wages). These are separate from federal income tax and go into different programs. You'll see these listed separately on your pay stub.

The W-4 form lets you control how much is withheld. If you claim more allowances, less is withheld. If you claim fewer, more is withheld. You can adjust your W-4 at any time during the year if your situation changes — for example, if you get married, have a child, or take a second job.

Self-employment and business income taxes

If you're self-employed or own a business, you don't have an employer withholding taxes for you. Instead, you're responsible for paying estimated quarterly taxes four times a year: April 15, June 15, September 15, and January 15. These payments are based on your expected income for the year.

Self-employed people also pay self-employment tax, which covers both the employee and employer portions of Social Security and Medicare. This is 15.3% of your net self-employment income (12.4% for Social Security up to a cap, and 2.9% for Medicare on all income). You can deduct half of this self-employment tax when calculating your adjusted gross income, which reduces your taxable income slightly.

If you underestimate your income and don't pay enough in quarterly taxes, you may owe a penalty when you file your return. The IRS calculates penalties based on how much you underpaid and how late the payment was. To avoid penalties, you can use your previous year's income as a safe harbor — if you pay 100% of last year's tax in quarterly payments, you won't face an underpayment penalty, even if your income was higher this year.

Capital gains and investment income

Capital gains are profits from selling an investment like stocks, bonds, or real estate. They're taxed differently depending on how long you held the investment. If you held it for one year or less, it's a short-term capital gain and is taxed as ordinary income at your regular bracket rate. If you held it for more than one year, it's a long-term capital gain and is taxed at preferential rates: 0%, 15%, or 20%, depending on your income level.

Long-term capital gains rates are much lower than ordinary income rates. For 2024, a single filer can have up to $47,025 of long-term capital gains taxed at 0%, then gains above that up to $518,900 are taxed at 15%, and gains above that are taxed at 20%. These thresholds are different for married filing jointly and other filing statuses.

may have access to dividends — dividends from stocks you've held for more than 60 days — are also taxed at long-term capital gains rates rather than ordinary income rates. Non-may have access to dividends and interest income are taxed as ordinary income.

Deductions and credits that lower your tax bill

A deduction reduces the amount of income that is subject to tax. You can take either the standard deduction — a fixed amount based on your filing status — or itemized deductions if they total more than the standard. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly. These amounts increase slightly each year for inflation.

Common itemized deductions include mortgage interest, state and local taxes (up to $10,000), charitable contributions, and medical expenses above 7.5% of your adjusted gross income. If your itemized deductions add up to more than the standard deduction, you benefit from itemizing. Otherwise, you use the standard deduction.

A tax credit is different from a deduction — it reduces your tax bill directly, dollar for dollar. A $1,000 credit saves you $1,000 in tax, while a $1,000 deduction saves you tax only at your bracket rate. Common credits include the Child Tax Credit ($2,000 per may have access to child), the Earned Income Tax Credit for lower-income workers, and education credits like the American Opportunity Credit. Some credits are refundable, meaning if the credit is larger than your tax bill, you get the difference back as a refund.

State and local income taxes

In addition to federal tax, most states charge income tax on wages and investment income. State tax rates vary widely — some states have no income tax at all, while others tax income at rates up to 13%. A few states tax only certain types of income, like dividends and capital gains.

Your employer withholds state income tax from your paycheck if you live in a state that has it. The amount depends on your state's tax brackets and the information you provide on your state's equivalent of the W-4 form. If you move to a different state during the year, you may need to adjust your withholding or file returns in both states.

Some states also charge local income tax in addition to state tax. This is less common but does exist in certain cities and counties. You'll see this withheld separately on your pay stub if it applies to you.

Frequently Asked Questions

What's the difference between my tax bracket and my effective tax rate?

Your tax bracket is the rate applied to your highest income — the top of the range you fall into. Your effective tax rate is your total tax divided by your total income. Because of the progressive system, your effective rate is always lower than your bracket rate. If you're in the 24% bracket, your effective rate might be 18% or 19%.

Do I have to pay taxes on all my income?

No. Some income is not taxed at all, like gifts, inheritances, and life insurance proceeds. Other income is taxed only if it exceeds a threshold — for example, Social Security benefits are taxed only if your combined income (adjusted gross income plus nontaxable interest plus half of Social Security benefits) exceeds certain amounts. Roth IRA withdrawals in retirement are also not taxed if you meet certain conditions.

Can I reduce my tax bill by contributing to a retirement account?

Yes. Contributions to traditional 401(k)s and traditional IRAs reduce your taxable income in the year you make them, lowering your tax bill. Contributions to Roth accounts don't reduce your current tax bill, but the withdrawals in retirement are tax-free. The amount you can contribute is limited by the IRS and depends on your age and income.

What happens if I don't pay enough in taxes during the year?

You'll owe the difference when you file your return, plus interest and possibly a penalty for underpayment. The penalty is calculated based on how much you underpaid and how late the payment was. You can avoid the penalty by paying 100% of your previous year's tax in quarterly estimated payments, even if your current year income is higher.

Are there any income levels where I don't have to file a tax return?

Yes. For 2024, single filers under age 65 don't have to file if their income is below $14,600 (the standard deduction). The threshold is higher if you're age 65 or older, married, or self-employed. Even if you're not required to file, you may want to if you had taxes withheld, because you could get a refund.