There are 7 federal income tax brackets currently ranging from 10-37% and how much you pay depends on your taxable income and filing status. However, all of your income is likely not taxed at one single bracket rate. That’s because federal income is taxed in chunks as you ascend up the tax brackets, making the math a little complex.
Tip: It’s easier to use a tax bracket calculator to find your tax bracket, and we recommend this one at TurboTax.com.
Here’s how tax brackets work plus how to calculate your effective tax rate.
How Tax Brackets Work: (Effective Tax Rate)
For example, let’s say you have single filing status and your taxable income was $75k. You’ll pay rates across 3 tax brackets:
- The first $10k is taxed at 10%
- The next $30.5k is taxed at 12%
- The final $30k is taxed at 22%
In this case, you’d pay about $11.3k in taxes which is approximately a 14% average or “effective tax rate” on your entire taxable income.
There are 7 tax brackets that go up to $523,600 and the higher your income, the higher your tax rate.
So, let’s now imagine that you made $1 million last year. Your income will be taxed in chunks across all 7 of the tax brackets, and all income above $523,600 is taxed at the highest tax bracket of 37%.
In this case, you’d pay about $334k in taxes making your effective tax rate 33.4%. Make sense!?
Use The TurboTax Tax Bracket Calculator!
As you can see, your effective tax rate depends on a few things including your taxable income and filing status, so it’s not just simple math. For this reason, a tax bracket calculator is really handy.
TurboTax has a great, free one online to help you calculate your estimated tax rate:
Use TurboTax’s tax bracket calculator to quickly calculate your federal income tax percentage for your financial planning.
To use their tax bracket calculator follow these steps:
- Go to turbotax.com
- Click, “tools and resources“ on the top nav
- Select “tax calculators“
- Choose “tax bracket calculator“
- Enter your filing status and taxable income
- TurboTax will calculate your marginal tax rate
- Filing with TurboTax? Use our exclusive discount for the best price!
*Want to estimate your tax refund? There’s a calculator for that here. Filers with simple taxes can even file free!
Tax Brackets for 2022:
There are good resources every year to determine tax brackets including TurboTax, the IRS, and Tax Foundation:
Now, do you see why using a tax bracket calculator to determine your federal taxes really helps?
I always thought that each person only had one tax bracket depending on their income. However, a single person with a high income can be taxed across all 7 of the Federal income tax brackets with the average being your effective tax rate.
The easiest way to calculate your effective tax rate is to use a tax bracket calculator, and I recommend the one at TurboTax.com.
While death and taxes are unavoidable, I hope you at least better understand tax brackets and benefit from calculating your effective tax rate.
Thanks for visiting Black Alliance!