Do You Know Your Tax Bracket?

The tax bracket is the range of income that receives the same tax rate. Understanding where you fall in these brackets will help you determine how much of your income goes to taxes and what that means for the future.

Knowing your tax bracket can help you ensure that you don’t overpay or underpay your taxes. It’s not just about finding out that you are not in a high tax bracket and breathing a sigh of relief. It’s also about having some insight into what you can do to get your taxes lowered by putting more money towards deductions and credits this year so that next year, you find yourself in the same or a lower bracket.

What Are 2022 Tax Brackets?

The Internal Revenue Service (IRS) regularly adjusts more than 60 tax provisions for inflation to prevent bracket creep. Wage stagnation occurs when persons are pushed into higher tax brackets or have the value of their credits and deductions decreased owing to inflation rather than any increase in real income. The income limitations for all tax categories and filers will be changed for inflation in 2022.

The new single filers income tax brackets and rates for the year 2022 will be:

  • 10%: $0 to $10,275
  • 12%: $10,275 to $41,775
  • 22%: $41,775 to $89,075
  • 24%: $89,075 to $170,050
  • 32%: $170,050 to $215,950
  • 35%: $215,950 to $539,900
  • 37%: $539,900 or more

The Difference Between Tax Bracket and Effective Tax Rate

Tax Bracket

Tax brackets are the divisions in a country’s tax code that determines how much tax an individual or corporation will pay on the income they earn. The tax bracket an individual or corporation falls into is based on their taxable income. The amount of tax paid within each bracket is also based on the marginal tax rate for that bracket.

The progressive tax rate structure of the United States federal income tax system means that as taxable income rises, a progressively higher tax rate applies to the last dollar earned. Brackets are often set so taxable income falling within each bracket does not exceed its maximum value. Each bracket has an upper limit beyond which no taxes are owed on the amount for which the bracket applies.

In 2020, for example, if you are a single person, the lowest feasible tax rate of 10% is applied to your first $9,525 in income. The remainder of your income is taxed at the following tax bracket of 12% until it reaches the next limit.

Effective Tax Rate

The effective tax rate is the percentage of an individual’s or corporation’s income that they pay in taxes. Individuals’ effective tax rate is the average tax rate on their earned income, such as wages, and unearned income, such as stock dividends. The effective tax rate can be calculated in different ways.

One way to calculate the effective tax rate is to divide the total amount of taxes paid by the total amount of taxable income. Another way is to divide the total amount of taxes paid by the sum of the taxable income and any nontaxable income.

An example of this is if a person made $100,000 and paid $25,000 in taxes to the IRS, the effective tax rate would be 25%. The effective tax rate can be calculated by dividing the amount paid in taxes ($25,000) by the annual income before taxes ($100,000). The answer is 0.25, or 25%.


The new tax brackets are a good thing for taxpayers. It means that you have more money to spend on your family or save for retirement. If you’re considering what your effective tax rate is in 2022, you might want to take into account the types of deductions that will be available and how much higher (or lower) it could affect your overall tax bill.

As we head into the new year, it’s important to look at your tax bracket for 2022. It might not seem like an urgent issue now, but if you wait too long, you may miss out on some of those deductions and credits that could save you money in the future. Want to know more? Subscribe to Wealtheo+ to get access to all of our courses plus much more.

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