tax bracket

A tax bracket refers to a range of income levels that are taxed at a specific marginal tax rate. The U.S. federal income tax system is progressive, meaning that higher income levels are taxed at higher rates.12

When your income increases, only the portion of your income that falls into a higher tax bracket is taxed at that higher rate. Your entire income is not taxed at the highest rate you reach. For example, if your income falls into the 22% tax bracket, only the income within that specific range is taxed at 22%; income below that range is taxed at lower rates.1

The marginal tax rate is the rate applied to the last dollar earned. Understanding these brackets is crucial for financial planning, as it affects your overall tax liability and can influence decisions about income timing and deductions.314