In high school, you learned things about algebra, chemistry, and the feminist underpinnings of Madame Bovary. But you didn’t learn much about tax brackets.<\/p>\n\n\n\n
So when someone asks, “How do tax brackets work?” your first instinct might be to say, “I don’t care.” If you’ve gotten by this long, why do you need to know about them now? You pay your share and don’t want to think about how tax brackets work beyond that.<\/p>\n\n\n\n
Financial literacy is critical because if you don’t understand the basics of your taxes, you won’t understand what it means when Congress does things like pass a new tax bill, which they did in late 2017.<\/p>\n\n\n\n
Read on to find out more about the U.S. tax brackets.<\/p>\n\n\n\n
The federal government uses seven current tax brackets for individuals. In most states, you still have to pay state income taxes after you pay the feds unless you’re lucky enough to live in one of the states without an income tax. <\/a><\/p>\n\n\n\n It’s also important to note that personal income taxes aren’t the only part of the story. You could not pay a personal income tax but still have to pay high property taxes, for instance.<\/p>\n\n\n\n Then there are sales taxes. For instance, Oregon is one of five states with no sales tax, but residents of the Beaver State still have to pay an income tax that’s one of the highest in the country.<\/p>\n\n\n\n While it’s nice to get a low tax bill from Uncle Sam, or even to get a refund, it’s only one piece of a complicated financial puzzle.<\/p>\n\n\n\n How you file also makes a difference. A single person will pay taxes differently than a married couple that files together.<\/p>\n\n\n\n Most people don’t pay one single tax rate. Some of their income is taxed in the first bracket, some in the second, and so on. The lowest bracket is 10 percent, while the highest is 37 percent.<\/p>\n\n\n\n The more you make, the more you pay. That’s called a progressive system of taxing because the thinking goes that the government is taking more from those who have more to spare.<\/p>\n\n\n\n Let’s look at a progressive tax example. If you’re a single person making more than $500,000 annually, you’re looking at paying a 37 percent marginal tax rate on any income beyond $500,001.<\/p>\n\n\n\n Does that mean rich people are going to necessarily pay that 37 percent? Not if they can hire an accountant to find loopholes that will get them out of it, and generally speaking, there are a lot of loopholes in the U.S. tax code.<\/p>\n\n\nMarginal Tax Rates<\/h2>\n\n\n\n