How Tax Brackets Work

How much you must pay in taxes begins with your total or “gross” income from all sources. You can then claim any deductions to which you’re entitled to subtract from this total and arrive at your taxable income.

The federal government uses a progressive tax system, which means that the higher your taxable income, the higher your effective tax rate will be. These rates are determined by tax brackets.

For example, you’re in the 24% tax bracket for tax year 2020 if you’re single and your taxable income was between $85,525 and $163,300. But only the portion of your income above $85,525 will be charged at that 24% rate.

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