Daily Juice 013 – What is a tax bracket

Daily Juice 013 – What is a tax bracket

The United States has a progressive tax system, which means different portions of your income are taxed at different rates. Generally speaking, you pay a higher overall tax rate if you have a higher taxable income.

The tax brackets range from 10% to 39.6%—and the more you earn the higher your bracket. But be aware that the rate is not applied flat across all your income. Portions of your income fall into different brackets, which means your actual tax rate is likely to be much lower than your bracket.

Your Effective tax rate:

While it’s likely you will pay income tax at various rates or tax brackets throughout the year, the actual percentage of your income that goes to the IRS is called- effective tax rate.

Here is an example for you: If half of your income is taxed at 10 percent and the other half at 15 percent, then your effective tax rate of 12.5 percent, which means that 12.5 cents of every dollar you earned this year goes to the IRS.

So the question remains, how can we keep our tax rate down.  Various Deductions and Credits help lower your taxable income, therefore it’s taxed at lower tax bracket. Example of deduction is Retirement Plan contribution (401k or IRA) help reduce taxable income.

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Anna Sergunina
Anna Sergunina

I'm Anna Sergunina, CFP®, President & CEO at MainStreet Financial Planning, Inc. My passion lies in serving others through financial planning, helping clients achieve their dreams like buying a home, saving for education, or retiring early. With over two decades in the industry and a CFP designation since 2009, I'm dedicated to excellence and continuous growth. Beyond work, I cherish moments with my son Liam, prioritize self-care, and engage in content creation for my Money Boss Parent Podcast and Money Library blog.

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