For many citizens, taxes are a fact of life that are often accepted without fully being understood. Every year, millions of Americans file their tax returns, see a portion of their income deducted, or wait for a refund, yet remain unsure about how the system actually works. Terms like “tax brackets,” “federal income tax,” and “marginal rates” are commonly heard during tax season, but they can feel technical, intimidating, or overly complex to the average taxpayer. Here is a basic guide:
What Is Federal Income Tax?
Federal income tax is the revenue collected by the US government on money earned by individuals and households. This includes wages, salaries, business income, interest, dividends, and some investment gains. The revenue generated is used to fund national services such as defence, healthcare, education, infrastructure, and social security.
How much federal income tax you pay depends on three main factors:
- Your taxable income.
- Your filing status.
- The tax deductions and credits you qualify for.
What Are Tax Brackets?
A tax bracket represents a specific range of income that is taxed at a particular rate. The United States follows a progressive tax system, meaning tax rates rise as income increases.
For the 2026 tax year (taxes filed in 2027), there are seven federal income tax brackets:
- 10 per cent
- 12 per cent
- 22 per cent
- 24 per cent
- 32 per cent
- 35 per cent
- 37 per cent
These rates are the same as those used in 2025. The income thresholds within each bracket may change slightly each year due to inflation adjustments made by the (Internal Revenue Service) IRS.
Filing Status
Your filing status affects which tax brackets apply to you. The main filing statuses are:
- Single
- Married Filing Jointly
- Married Filing Separately
- Head of Household
- Qualifying Widow(er)
Each filing status has its own tax bracket thresholds. For example, married couples filing jointly generally have wider income ranges before reaching higher tax rates compared to single filers.
Taxable Income vs Gross Income
Another key concept is the difference between gross income and taxable income.
- Gross income is the total money you earn before any deductions.
- Taxable income is what remains after deductions and adjustments.
Deductions reduce the amount of income that is subject to tax, which can lower your overall tax bill.
Standard Deduction And Itemised Deductions
Most taxpayers can reduce their taxable income by claiming a standard deduction, a fixed amount set by the IRS each year. The standard deduction varies by filing status and is adjusted annually for inflation.
Alternatively, some people choose itemised deductions, where they list specific expenses such as mortgage interest, charitable donations, and certain medical costs. You can choose whichever option gives you the larger deduction, but not both.
For many people, the standard deduction is simpler and more beneficial.
Tax Credits
While deductions reduce your taxable income, tax credits reduce your actual tax bill, dollar for dollar. For example, a $1,000 tax credit reduces your tax owed by $1,000.
Common tax credits include:
- Child Tax Credit
- Earned Income Tax Credit
- Education-related credits
Some credits are refundable, meaning you can receive money back even if you owe little or no tax.
How To Calculate Your Federal Income Tax
- Add up all sources of income
- Subtract adjustments and deductions to find taxable income
- Apply tax brackets to each portion of income
- Subtract any tax credits
The IRS provides detailed tax tables and online calculators to help taxpayers determine their exact tax liability based on filing status and income.
Why Tax Brackets Change Over Time
Tax brackets are adjusted each year for inflation to prevent “bracket creep,” where people are pushed into higher tax brackets simply because of rising wages, not increased purchasing power. Congress may change tax rates or rules through new tax laws, which can affect brackets, deductions, and credits.
Understanding Progressive Taxation
In a progressive system, your income is taxed in layers. This means that if you earn more money, only the portion of income that falls into a higher bracket is taxed at the higher rate, not your entire income.
For example, if your taxable income places you in the 22 per cent tax bracket in 2026, that does not mean all your income is taxed at 22 per cent. Instead:
- The first portion is taxed at 10 per cent
- The next portion at 12 per cent
- Only the top portion is taxed at 22 per cent
This structure ensures fairness by keeping taxes lower on basic income levels while applying higher rates to higher earnings.
Marginal Tax Rates Explained
Your marginal tax rate is the rate applied to the last dollar you earn. As your income increases, your marginal tax rate may increase when you move into a higher tax bracket.
For example, a taxpayer earning $100,000 in 2026 falls into the 22 per cent bracket for all filing statuses. Only the income above the lower brackets is taxed at 22 per cent. This is why your total tax bill is always lower than applying a single rate to your entire income. Marginal tax rates are especially important when considering bonuses, overtime pay, or retirement withdrawals, as these earnings may be taxed at a higher rate.