2022 & 2023 Tax Brackets and Federal Income Tax Rates
The amount of federal income tax you pay depends on your tax bracket and your income.
A lot of people don’t know what they are, though — let alone how they work or how to use them to their advantage.
Understanding the seven federal tax brackets can help you plan a more effective tax strategy so you keep more money in your pocket.
What Are The Federal Income Tax Brackets?
Tax brackets are tiers. Each tier is a range of income, and the government taxes each of those tiers at a different rate. The amount of tax you pay depends on these factors:
- Filing status (single, married filing jointly, married filing separately, and head of household)
- Your taxable income
- The federal income tax rate the government assigns to your tax bracket
Your taxable income is the figure the government uses to determine the taxes you owe.
You start with your total income and may apply certain adjustments (like alimony paid or retirement account contributions) to determine your adjusted gross income or AGI.
From the AGI, you’ll subtract the itemized deductions from your Schedule A, or a “standard deduction” supplied by the IRS – whichever leaves you with the least amount of taxable income.
There are currently seven brackets for 2022 and 2023: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The income ranges these brackets apply to could change in the 2023 tax year, but the percentages most likely will not.
Which Banks Have the Best Savings Account Rates?
If you’re lucky enough to get a tax refund, or if you need to save money to pay for taxes due, you might be surprised to hear that savings rates are higher than they’ve been in years. Finding the bank with the best savings account to meet your needs is as simple as using our search tool.
2022 Federal Income Tax Brackets
You’ll notice that for 2022 you’re able to earn a bit more than you did in 2021 before being bumped into a higher income tax bracket. That is normal, usually to account for inflation.
Note: 2022 federal income tax brackets for tax returns due April 18, 2023, or October 16, 2023, with an extension.
2023 Federal Income Tax Brackets
For 2023, you can earn more than you did in 2022 and stay in the same tax bracket.
Note: 2023 federal income tax brackets for tax returns due April 15, 2024, or October 15, 2024, with an extension.
Important 2022 & 2023 Tax Deadlines
Although the tax deadline is usually on April 15 of each year, you get a few extra days to file your 2022 taxes because April 15 is a Saturday, and Monday, April 17, is a holiday, Emancipation Day, in Washington, D.C.
Your tax return and any taxes you owe aren’t due until April 18, 2023, or October 16, 2023, if you’ve filed an extension.
The schedule for 2023 estimated tax payments is as follows:
- First-quarter payments: April 18, 2023
- Second-quarter payments: June 15, 2023
- Third-quarter payments: September 15, 2023
- Fourth-quarter payments: January 16, 2024
If you need more time to prepare your taxes, you can request an extension of the filing due date by submitting Form 4868 to the IRS by April 18, 2023.
Even when you file an extension, you are still required to pay any taxes owed for 2022 by April 18, 2023.
How Tax Brackets Work
It’s important to understand that the tax bracket into which your overall income falls does not apply to all of your taxable income — only the amount that exceeds the ceiling of the bracket below.
For example, if your taxable income is $100,000 and you’re a single filer, you are in the 24% bracket. But you won’t pay $24,000 in federal taxes.
According to the IRS, here’s what you’ll pay:
- 10% on the first $10,227=$1,023
- 12% on the next $31,500=$3,780
- 22% on the next $47,348=$10,417
- 24% on the last $10,925=$2,622
The total taxable income is $100,000, but the total taxes paid is $17,842. So in reality, you’re paying around 18% in federal taxes. That’s your effective tax rate.
Is It Bad to Move Into a Higher Tax Bracket?
Moving into a higher tax bracket means you’re probably earning more money. And since you only pay a higher tax rate on income that exceeds the ceiling of your old tax bracket, a higher bracket won’t leave you with less after-tax money.
However, you want to achieve the most after-tax income legally possible with good tax and investment planning. Borrowing can also be part of your tax-planning strategy.
How Deductions Lower Your Tax Bracket
Deductions are expenses that the IRS lets you subtract from your gross income to calculate your taxable income.
You can choose to take a standard deduction or itemize deductions on a Schedule A, whichever provides the lower taxable income.
Note that many deductions are subject to limitations. The medical expense deduction, for instance, has a 7.5% floor. That means you can only deduct qualifying medical costs that exceed 7.5% of your AGI.
Common itemized deductions include:
- Mortgage interest and mortgage insurance: The maximum deduction amount is interest on up to $750,000 of debt if you’re married and file jointly.
- Medical and dental expenses: Amount must exceed 7.5% of AGI.
- Charitable contributions
- Work-related education: This is to keep your current position, like continuing education for licensing — not to improve your prospects.
- State and local sales, property, and income taxes: The SALT deduction is capped at $10,000 for a married couple filing jointly.
- Business use of your home: This is the home office deduction.
- Personal casualty losses: This applies to federally declared disasters.
Standard Deductions for 2022 and 2023
The standard deductions for the 2022 and 2023 tax years are listed below. Your deduction depends on your filing status.
Note that tax deductions on Schedule A are different from business expenses that self-employed taxpayers take.
People often use the terms interchangeably, but there is a difference.
Reductions to taxable income taken on a business form like a Schedule C are expenses related to business activity. However, deductions on a Schedule A like mortgage interest and medical expenses have nothing to do with your source of income.
You may also reduce your taxable income with tax credits. Examples of tax credits include the Earned Income Credit for low-earning families and the Lifetime Learning Credit for education.
How Your Investments Affect Your Tax Bracket
The way you invest can affect your tax bracket too. Some investments are tax-deferred or tax-exempt.
Tax-deferred investments
Retirement accounts like the 401(k) and traditional IRA are tax-deferred. You deduct your contributions to the account from your income in the year you make the contribution, and you pay taxes on the money when you take a distribution. ‘
The advantage is that most of us are in lower tax brackets after retirement. Because the money grows without being taxed, you have more when you retire.
Tax-exempt investments
Tax-exempt investments include municipal bonds and bond funds. These are loans to local governments.
When evaluating tax-exempt investments, compare the after-tax returns. An investment that has the same amount of risk but is not tax-exempt will likely pay more. Tax-exempt investments benefit taxpayers in higher brackets more than those in lower brackets.
Borrowing can affect your tax bracket
Borrowing is also part of your tax plan.
Mortgage interest is tax-deductible, which makes borrowing less expensive if you actually take the deduction.
If your standard deduction is higher, you won’t deduct your mortgage insurance anyway, so don’t count the savings when you run your numbers.
Sometimes borrowing can save you at tax time. For instance, you might consider withdrawing money from your 401(k) to meet an emergency expense. But if your tax bracket is 25%, and you could borrow with a personal loan at 10%, borrowing is a cheaper option.
Lowering Your Tax Bill: Dos and Don’ts
You don’t have to be a financial genius to pay lower taxes. But there are mistakes to avoid.
How Politics and Tax Law May Change What You Pay in 2023 and Beyond
The 2022 and 2023 income tax brackets have been laid out. But tax laws and forms may change before it’s time to file 2024 taxes.
The government doesn’t just use tax law to fill its coffers. It uses it to shape behavior — for instance, by giving preferential tax treatment to homeowners to encourage homeownership.
The fallout from the coronavirus pandemic that began in 2019 will not be fully known for some time. But emergency funds to states and industries and individuals, combined with the economic contraction as many sheltered in their homes, will likely push deficits to new highs.
As a result, tax rates could be raised to generate more revenue, or Americans could be encouraged to spend and heat up the economy with tax incentives.
Both strategies have their pros and cons for the economy, says the Tax Policy Center at the Brookings Institution. High marginal tax rates can discourage citizens from working or saving. They can cause companies to cut back on investment and innovation. No one likes higher taxes, and most people prefer tax cuts. But tax cuts can harm economic growth in the long run by increasing deficits.
Previous Years’ Federal Income Tax Brackets
In 1913, the highest federal tax rate was just 7% on income over $500,000 (equal to over $10 million today). The lowest bracket at the time was just 1% for income up to $20,000 per year.
But World War I caused taxes to jump from 15% in 2016 to 77% by 2018. Tax brackets were not exempt from global events then, and they likely won’t be in the wake of COVID-19 today.
In the 1920s, the highest federal tax rates fell back to 25% — until the Great Depression. Congress raised it to 63% for those still earning at the top of the food chain.
World War II saw the highest marginal tax rates in U.S. history — 94% at the top. Apparently, peace is cheap(er), and war is costly.
The next three decades saw the highest marginal tax rates fall, but never below 70%.
In the 1980s, the top tier was cut to 50% and then to 28% with tax-reform acts. (That is until the resulting deficit caused congress to rethink and raise it to 39.8% in the 1990s.) It has since occupied a narrow range of between 35% and 40.8%.
No one loves paying taxes. But historically, today’s tax rates are low.
The number of brackets has not remained constant either. (In 1919, there were over 50.)
And while some of these rates seem very high (some years up to 94%), they only applied to the income that exceeded very high amounts for their times.
In addition, the tax code has morphed over the years to provide varying amounts of shelter for even very high incomes. The tax code is an imperfect reflection of the politics and priorities of government over the years. And it’s up to us to navigate it to our advantage and pay our legal obligation, but not a cent more.
