Federal Income Tax Calculation
The US federal income tax uses a progressive bracket system where higher income is taxed at higher rates. Tax brackets apply marginally - you only pay the higher rate on income within that bracket, not your entire income. For example, a single filer earning $75,000 pays 10% on the first $11,000, 12% on income from $11,000-$44,725, and 22% on the remainder.
Your effective tax rate (total tax divided by income) is always lower than your marginal rate (the highest bracket you reach) due to progressive taxation. Someone in the 22% bracket typically has an effective rate of 12-15%. Understanding this distinction prevents the misconception that earning more money could result in less take-home pay - only the additional income is taxed at the higher rate.
Deductions reduce taxable income. The standard deduction for 2024 is $14,600 single or $29,200 married filing jointly. Itemize only if your deductions (mortgage interest, charitable donations, state taxes up to $10,000) exceed the standard deduction. Tax credits directly reduce tax owed and are more valuable than deductions. Common credits include child tax credit ($2,000 per child), earned income credit, and education credits.
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Frequently Asked Questions
Marginal rate is the percentage on your last dollar earned (your tax bracket). Effective rate is total tax divided by total income - always lower due to progressive brackets. Marginal rate affects decisions about earning more; effective rate shows overall tax burden.
Itemize only if deductions exceed standard ($14,600 single, $29,200 married in 2024). After 2017 tax law changes, fewer than 10% of taxpayers benefit from itemizing. Track deductible expenses and calculate both ways.
Contribute to 401(k)/traditional IRA (pre-tax), HSA contributions, student loan interest deduction, educator expenses, self-employment deductions, and charitable donations. Tax-deferred retirement contributions are the most accessible strategy for most people.
Depends on your state. Nine states have no income tax (AK, FL, NV, NH, SD, TN, TX, WA, WY). Others range from 2-13% (California highest). State tax is separate from federal and calculated on separate returns.
You'll owe the difference when filing, plus potentially penalties and interest if you owe over $1,000 and didn't withhold at least 90% of current year tax or 100% of prior year tax. Adjust W-4 withholding to avoid penalties.