What is a tax rate?
A tax rate is the percentage at which an individual or corporation is taxed. In the US we have a progressive tax rate system which means that the percentage of tax charged increases as the amount of taxable income increases. In other words, the greater the income, the higher the tax rate.
2022 Income Tax Rates
Now, let’s look at the individual income tax rates for the year 2022:
37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly).
35%, for incomes over $215,950 ($431,900 for married couples filing jointly).
32% for incomes over $170,050 ($340,100 for married couples filing jointly).
24% for incomes over $89,075 ($178,150 for married couples filing jointly).
22% for incomes over $41,775 ($83,550 for married couples filing jointly).
12% for incomes over $10,275 ($20,550 for married couples filing jointly).
10% for incomes of $10,275 or less ($20,550 for married couples filing jointly).
As an example, if you are a single taxpayer with a taxable income of $150,000, here's what your tax calculation would look like based on our progressive tax system:
$10,275 * 10% = $1,275.5
($41,775 - $10,275) * 12% = $3,780
($89,075 - $41,775) * 22% = $10,406
($150,000 - $89,075) * 24% = $14,622
TOTAL TAX = $30,083.5
For this individual, their MARGINAL tax rate would be the tax rate they pay on their next dollar earned: 24%.
Because of our progressive tax system, your marginal tax rate is not the same as your effective tax rate.
For this individual, their EFFECTIVE tax rate would the total tax divided by their taxable income ($30,083.5/$150,000): 20.05%.
Remember, your taxable income is the amount AFTER taking into consideration your allowable deductions and credits so your taxable income would generally be less than your total income.
Click here if you wish to read more details about 2021 tax rates.
This post may not contain a complete analysis of the tax issues discussed herein and does not represent official conclusions or advice regarding the matter. The information in this post is relevant for the 2022 tax year as of the date published and may not be updated for future tax years.