Money is often so unnecessarily complicated. Case in point, tax brackets. No, we’re not talking about a basketball tournament here, we’re talking about how much tax you’re going to pay on your income (spoiler: probably a lot 🤡).

Just so our lawyers don't kill us… we have to tell you that we are not tax professionals. and the info we’re sharing is not tax advice.

If you’ve ever looked at a tax table and tried to figure out how much the IRS is actually going to take from you, you’ll know that answering the simple question of “What tax bracket am I in?” is not easy.

Cleo’s going to help you work it out. We’re going to explain exactly what a tax bracket is, and how to figure out how it impacts you 💁‍♀️

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How Do I Know What Tax Bracket I’m In

Ok, the process for finding out which federal tax bracket you’re in isn’t what we’d call ‘so simple even a goldfish could do it,’ but it’s also not as complicated as it might first appear. There are four basic steps to work it out.

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Check your filing status

Tax rates are different depending on which filing status you use. There are four ways you can file: 

• Single filers
• Married filing jointly
• Married filing separately
• Head of household. 

This is important because there are tax benefits to being married (as if you needed any more pressure to find a date) 🙃 

No idea what your filing status is? Check out the IRS filing tool.  

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Determine your taxable income

Once you know your filing status, you can tally up your taxable income for the year. This includes everything from a main salary, side hustle income, or work in the gig economy. If you’re just looking for a general idea of which tax bracket you’re in, there’s no need to be too specific on this. But make sure you are when it comes to actually filing your taxes 👮

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Compare your income to the tax tables

Ok, but what federal tax bracket am I in, you ask? First find out where in the tax table you sit. These can change from year to year, but we’ve included the tax table for the 2023 and 2024 tax years below for reference.

🚨Key Point 🚨A common misunderstanding is that you pay tax on your entire income based on your highest tax bracket. But that’s not how it works. Jumping $1 into a new tax bracket doesn’t mean you pay the higher rate on all your income, just the $1 that is in that tax bracket.

For example, if you’re a single filer, the tax bracket for the first $11,000 you earn is 10%. After that it goes to 12%. If you earned $11,001 in a year, the first $11,000 would still be taxed at 10%, and just the additional $1 would be charged at 12%. 

Otherwise, there’d be much less of a reason to work more and earn a higher income (and we don’t need any more reasons to shun capitalism 🤡).

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2023 Tax Brackets & Income Rates

Tax returns for 2023 are due to be filed and paid by April 15, 2024. What is my tax bracket for 2023? The tax table for the 2023 year, which we mentioned above, looks like this:

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2024 Tax Brackets & Income Rates

Taxes for 2024 are due to be paid by April 15, 2025. What is my tax bracket for 2024? The tax table for the 2024 year looks like this:

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How to File a Tax Return

Unless you want to go full boomer and fill out some paper forms, the most common way to file your taxes is to e-file them. Basically, that means using an online program to do it.

There are a range of free options, and you can find an approved list on the IRS website.

To file your return you’ll need your W-2 from each employer or 1099 and 1099-INT forms if you received income from other sources like bank account interest. If you’re confused and still unclear about what to do, definitely talk to a tax professional. 

Lastly, you’ll need to get receipts for any charitable donations you made (paying for your besties coffee doesn’t count), any mortgage interest you paid, state and local taxes, expenses for medical and business needs throughout the year and any other tax-deductible expenses you incurred.

It can potentially be easier (or a financially better decision) to take what’s called the ‘standard deduction’ rather than itemizing out everything. You can read more about that here.

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How are Tax Brackets Calculated

In simple terms, the US government looks to set tax rates at levels that allow them to raise revenue to help cover the costs of running the country, while incentivizing people to work and earn more.

If the tax rate was 100%, would you go out and work? Of course not. The challenge is getting that balance right, while also trying to spread the tax burden in the right way.

The US federal government considers a wide range of factors when calculating the tax brackets each year.

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Summing up

Like it or not, taxes are probably your biggest expense every year, no matter how much time you spend in Target. That’s why understanding which tax bracket you’re in is super important when it comes to managing your personal finances. It’s always a good idea to chat with a tax professional.

If you’re looking for other ways to boost your savings, Cleo gives you access to an AI-powered personal finance assistant, to help you navigate the ever-changing money maze. Get personalized tips and coaching on how to save more, alongside tools and features that make it easy, and…even fun.

Essentially, if you need to get your money shit sorted, get the Cleo App in your life 🙋‍♀️

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