What Does The Term “Tax Bracket” Mean?

The income tax laws are complex and constantly changing.  Yet, there is one theme that is constant and its understanding may help you identify ways to reduce your tax bill.


The U. S. tax laws are built around a progressive, marginal rate structure.  Simply speaking, this means the higher your income, the higher the rate of tax you pay on your incremental income.


Think of our tax system like stair steps.  Each step represents a “bracket” of income that is taxed at a certain rate.  The higher you go, the higher the tax rate on the income in that bracket.  “Segments” of income at lower levels are taxed at lower rates and “segments” of income at higher levels are taxed at higher rates.


Here are the “brackets” and rates for 2021 tax returns.


Income Tax Rate Schedules for 2021

Single Return Rate Schedule    Married Filing Jointly Rate Schedule
Taxable income levels Tax rate   Taxable income levels Tax rate
0 to $9,950 10% 0 to $19,900 10%
$9,951 to $40,525 12% $19,901 to $81,050 12%
$40,526 to $86,375 22% $81,051 to $172,750 22%
$86,376 to $164,925 24% $172,751 to $329,850 24%
$164,926 to $209,425 32% $329,851 to $418,850 32%
$209,426 to $523,600 35% $418,851 to $628,300 35%
Over $523,601 37% Over $628,301 37%


There is a great deal more to our income tax laws like the definition of taxable income, deductions, alternative minimum tax and lots more.  Discussing your tax situation with your tax advisor may help you identify ways to take advantage of this marginal rate system and keep your taxes as low as possible.