Understanding Marginal Rates
U.S. tax brackets are based on marginal tax rates -- the rate on your highest dollar of income. For example, in 2014, the lowest bracket is for taxable income up to $9,075. For single taxpayers, the tax rate is 10 percent. The second level includes an additional 15 percent tax on all income above $9,075 up to $36,900. Thus, a taxpayer filing as single and earning $29,075 in taxable income would pay 10 percent on the first $9,075 -- or $907.50 -- plus 15 percent on the next $20,000 -- or $3,000. In this example, the total tax liability would be $3,907.50.
Tax brackets are based on taxable income. That means your deductions and adjustments to income, when filing taxes, can throw you into a higher or lower tax bracket based on your personal financial situation. In addition, your filing status affects your tax rate. For example, the lowest rate of 10 percent applies to taxable income up to $12,950 for taxpayers filing as head of a household and up to $18,150 for married taxpayers filing jointly. The tax tables the Internal Revenue Service provides to filers have the marginal rates for the different brackets built into the charts.
The third tier in U.S. tax brackets for single taxpayers encompasses taxable incomes of more than $36,900 up to $89,350. Based on the marginal rates, in this bracket taxpayers pay 10 percent on the first $9,075 of taxable income, 15 percent on the income above $9,075 up to $36,900 and 25 percent on taxable income above $36,900 up to $89,350. The fourth bracket includes the same rates as the third and adds a 28 percent tax rate to income above $89,350 up to $186,350.
Single taxpayers in the fifth bracket pay the same 10, 15, 25, and 28 percent rates on the progressive income levels in the first four brackets plus 33 percent on all income above $186,350 up to $405,100, where the sixth level starts. The sixth level for single taxpayers is a 35 percent rate on income above $405,100 up to $406,750, the threshold for the seventh and highest tax bracket. Taxable income above $406,750 is taxed at a rate of 39.6 percent for single taxpayers.
Rates are different for taxpayers with other filing statuses. For example, the fifth tax bracket for married couples filing jointly begins at $226,850 and goes up to $405,100. The sixth bracket includes income from $405,100 up to $457,600. Married taxpayers filing jointly who earn more than $457,600 in taxable income fall into the highest tax bracket.
Based on 2013 household incomes, most Americans fit into the middle income tax brackets. Roughly one-third of households are in the lowest brackets and approximately one-fifth of U.S. households are in the top tax brackets, according to census data analyzed by the Pew Research Center.