Tax brackets in the U.S. shape a lot of how taxes impact individual Americans. Like any progressive tax system, the more money you make, the higher tax bracket you’re in and the more you owe the government.
It’s common for people to move into higher tax brackets as they age and their earning power increases, but loss of income can also knock you into a lower bracket and reduce your tax burden. Whichever way you go, you’ll want to know the implications of changing tax brackets and what you can do to keep your tax bill as low as possible.
2024 federal income tax brackets
Most Americans who earn income are required to pay federal income tax. The rate you pay depends on your taxable income in a given year. Here are the U.S. federal tax rates for 2024, according to the Internal Revenue Service (IRS):1
| Tax rate | Single filers | Married filing jointly | Head of household |
|---|---|---|---|
| 10% | $0 - $11,600 | $0 - $23,200 | $0 - $16,550 |
| 12% | $11,600 - $47,150 | $23,200 - $94,300 | $16,550 - $63,100 |
| 22% | $47,150 - $100,525 | $94,300 - $201,050 | $63,100 - $100,500 |
| 24% | $100,525 - $191,950 | $201,050 - $383,900 | $100,500 - $191,950 |
| 32% | $191,950 - $243,725 | $383,900 - $487,450 | $191,950 - $243,700 |
| 35% | $243,725 - $609,350 | $487,450 - $731,200 | $243,700 - $609,350 |
| 37% | $609,350 or more | $731,200 or more | $609,350 or more |
How your tax rate affects you is also a little more complicated than it looks. Let’s say you’re a single filer earning $50,000 a year. You would fall into the 22% tax bracket, but that doesn’t mean you pay 22% of your $50,000 salary in taxes. Instead, you pay 10% on the first $11,600, 12% on the next $35,550 (up to $47,150) and the full 22% tax rate on the remaining $2,850.
Keep in mind that this is just a projection. Also, deductions and credits may apply to lower your overall taxable income.
Why might your tax bracket change?
Your tax bracket may change for a variety of reasons. These include:
- Getting a raise
- Changing jobs
- Losing your job
- Getting married
- Having a kid
In the case of a raise or loss of income, it’s clear to see why your rate may change. Getting married can also change your tax bracket, as married couples often file jointly and your combined income with your spouse may move you higher or lower on the tax ladder.
Even having a kid can change your tax bracket. Depending on how many kids – or other qualified dependents – you have and your income, you may qualify for the Child Tax Credit of up to $2,000 per qualifying dependent.2
What happens when you change tax brackets?
The main thing that changes when you change tax brackets is the tax rates that apply to your taxable income to determine your tax liability. Moving into a higher tax bracket typically increases the amount you’ll owe, and the opposite is true for moving to a lower tax bracket.
However, taxes are rarely so straightforward. The way taxes are structured in the U.S. means certain deductions can be applied to your adjusted gross income (AGI), depending on what you qualify for, to determine your taxable income. And tax brackets are based on taxable income. So it’s possible you might earn more gross income, but at the same time be eligible to claim more deductions that reduce your taxable income and move you into a lower tax bracket. Even if you end up in a higher tax bracket, you may qualify for tax credits that offset your tax liability. This is why it’s advised to work with a tax professional, especially in situations where you have gained wealth and are unsure of how to navigate your new tax situation.
How to successfully navigate a tax bracket change
How you respond to a tax bracket change depends on where you earn your income. If you are a W-2 employee, for example, you may want to reexamine your Form W-4 and how much tax is being withheld from each of your paychecks. It may mean you need to adjust the dependents or other credits claimed or make other adjustments to withholding for other income you expect to earn or deductions you expect to claim.
When more is withheld from your paychecks, you may be eligible for a tax refund when you file your return for the year. However, it’s generally recommended you try to break even as between what is withheld from your paychecks and your year-end tax liability, instead of over-withholding throughout the year and filing for a big tax refund when you file your tax return, because you can use the extra paycheck money throughout the year to invest and earn interest rather than loaning it to the IRS interest-free in the form of over-withholding of taxes throughout the year.
Moving tax brackets requires more action on the part of self-employed individuals. To stay on top of a tax rate increase, someone who’s self-employed needs to put aside more money each time they’re paid so they have enough to foot their tax bill (typically paid every quarter). Aside from U.S. federal income tax, they’re also paying self-employment tax, so being on top of their taxes is of heightened importance.
The bottom line
Changing tax brackets is something almost everyone does in their lifetime and shouldn’t cause any undue stress. But you do want to be informed of how your new bracket changes your tax liability and what this means for your finances.
You can navigate a tax bracket change on your own by reexamining your tax situation, looking over applicable tax forms and preparing for any additional expenses. Reaching out to a tax professional is an important step to ensure you’re not missing anything when it comes to your taxes. A change in tax bracket could mean you need to change how you approach filing taxes, and doing this the correct way could save you hundreds or even thousands of dollars.
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