Income tax works in brackets — you don't pay the same rate on every dollar. Understanding how this works stops people from avoiding pay rises because they think 'moving into a higher bracket' costs them money. It doesn't.
How tax brackets work (US federal 2024)
Tax brackets are marginal — each rate only applies to income within that range:
10% on the first $11,600 (single filer)
12% on $11,601–$47,150
22% on $47,151–$100,525
24% on $100,526–$191,950
32%–37% on higher income
If you earn $75,000, you don't pay 22% on all of it — you pay 10% on the first $11,600, 12% on the next $35,550, and 22% on the remaining $27,850.
The effective tax rate vs. marginal rate
Your marginal rate is the rate you pay on the last dollar earned. Your effective rate is what you actually pay as a percentage of total income. At $75,000 (single, standard deduction), the effective federal rate is around 13–14% — not 22%.
Common deductions that reduce your bill
- Standard deduction ($14,600 for single filers in 2024)
- 401(k) contributions (pre-tax, reduces taxable income)
- Health insurance premiums (if pre-tax through employer)
- Student loan interest (up to $2,500)
- State and local taxes (SALT deduction, capped at $10,000)
Don't forget payroll taxes
On top of income tax, employees pay 6.2% Social Security tax (on first $168,600 of income) and 1.45% Medicare tax. Freelancers and self-employed people pay both the employee and employer share — 15.3% total on net self-employment income.
Frequently Asked Questions
Will a raise put me in a higher bracket and cost me money?
No — this is one of the most common tax misconceptions. Tax brackets are marginal: only the portion of income within a given bracket is taxed at that rate. Getting a raise can never result in lower take-home pay due to income tax brackets. Moving from 12% to 22% means you pay 22% only on the income above the 12% threshold, not on your entire salary.
What is the difference between federal and state income tax?
Federal income tax is paid to the IRS and applies across the US. State income tax is levied by your state government and varies enormously: from 0% in states like Florida, Texas, and Nevada to over 13% in California. Your effective total tax rate combines federal, state, and payroll taxes. Always account for your state when estimating take-home pay.
How do I know if my employer is withholding the right amount?
Review your last tax return. If you owed a large amount or received a large refund, your W-4 withholding is likely miscalibrated. Use the IRS Withholding Estimator at irs.gov to get a more accurate figure. Ideally, you want to roughly break even — a large refund means you gave the government an interest-free loan all year.
Estimate your freelance or self-employment tax
If you work for yourself, use our Freelance Tax Estimator to calculate SE tax, federal tax, and quarterly payment amounts.