Understanding tax brackets: What to know to maximize your return
The federal government set tax day a little later this year but April 18 is still quickly approaching. If you haven't filed your returns already, it's time to start preparing, especially given recent tax changes that could impact your refund.
A good place to start is to understand your tax bracket. These change regularly and play a significant role in what taxes you pay and how big your tax refund is. Not sure what tax bracket you fall into for 2022? Below we will break down what you need to know in order to properly start filing your taxes.
What are tax brackets?
Tax brackets are how the Internal Revenue Service (IRS) determines what each person pays in taxes. They're broken down by income ranges, with each range getting its own assigned tax rate.
"The use of tax brackets in the United States dates back to the introduction of the modern income tax in 1913," says Andrew Latham, a certified financial planner and editor of the financial site SuperMoney. "Initially, the tax was a flat rate of 1% on income over $3,000 for single filers and $4,000 for married filers. However, the Revenue Act of 1916 introduced a graduated tax system with 14 tax brackets and rates ranging from 2% to 15%."
Today, that system has been whittled down to just seven brackets, but the idea is the same. "As your income increases, your tax rate also increases," Latham explains.
What are the tax brackets for 2022?
The IRS changes tax brackets annually. For 2022, the agency made slight adjustments to the minimum taxable income thresholds that determine each bracket. These range from 10% for the lowest earners and 37% for the highest, just as they did in 2021.
"The updated tax brackets for 2022 reflect adjustments made for inflation and changes to tax policy," Latham says. "They have shifted slightly upward compared to 2021, which may benefit taxpayers by allowing more income to be taxed at lower rates."
See below to find your 2022 tax bracket:
Tax Filing Status | Taxable Income | Tax Rate |
Individual | $10,275 or less | 10% |
Individual | $10,276-$41,775 | 12% |
Individual | $41,776-$89,075 | 22% |
Individual | $89,076-$170,050 | 24% |
Individual | $171,050-$215,950 | 32% |
Individual | $215,951-$539,900 | 35% |
Individual | $539,901 and up | 37% |
Married, filing jointly | $20,550 or less | 10% |
Married, filing jointly | $20,551-$83,550 | 12% |
Married, filing jointly | $83,551-$178,150 | 22% |
Married, filing jointly | $178,151-$340,100 | 24% |
Married, filing jointly | $340,101-$431,900 | 32% |
Married, filing jointly | $431,901-$647,850 | 35% |
Married, filing jointly | $647,851 and up | 37% |
Historically, tax brackets haven't changed considerably for lower-income earners. Going back to 1970, the lowest tax bracket has ranged from 10% to 14%, depending on the year. On the high end, there's been a lot more disparity. In the early '70s, for example, the top earners paid a 70% tax rate.
How tax brackets affect your return
If you end up in a higher tax bracket than last year, don't fret. While it may mean paying more in taxes than you did previously, there are a lot of factors that can impact your tax burden.
For one, tax brackets are progressive, so you won't pay the same rate on all your earnings. For example, if you made $200,000 in 2022, your taxes would look like this:
- 10% on the first $10,275
- 12% on the next $31,500
- 22% on the next $47,300
- 24% on the next $80,975
- 32% on the last $29,950
"It's very common for people to get confused by tax brackets," says Brian Hershman, founder of BSH Accounting."If you're in the 22% tax bracket, your whole $100,000 salary is not taxed at a 22% rate. Your average tax rate is 14.77%."
There are also deductions to consider. These reduce your taxable income and, subsequently, the tax bracket you fall into. For the 2022 tax year, the IRS increased the standard deduction to $12,950 for single taxpayers and $25,900 for married couples who file their returns jointly. If you claim dependents or itemize your deductions, you could be able to reduce your income (and tax bracket) even more.
The team at TurboTax can help you understand how tax brackets affect your return and how you can get the most back in a refund. Get started with them here now!
Maximize your tax refund
If you want to minimize the impact of any tax bracket changes you've experienced — or just maximize the refund you're eligible for, consider consulting a tax professional in your area. They can help you determine what deductions, credits and other incentives you may be eligible for.
