Understanding Tax Brackets: What to Know to Maximize Your Returns

The federal government has set Tax Day a little later this year, but April 18 is still fast approaching. If you haven’t already filed your return, now is the time to do so Preparation beginsespecially given Recent tax changes That could affect your refund.

A good place to start is understanding your tax bracket. These change regularly and play an important role in what tax you pay How big is your tax refund?. Not sure what tax bracket you fall into for 2022? Below we’ll break down what you need to know to get started right File your taxes.

You can now get your taxes done right (and maximize your refund) using online tax preparation services.

What is the tax bracket?

Tax brackets are how the Internal Revenue Service (IRS) determines what taxes each person pays. They are divided by income bands, with each band having its own prescribed tax rate

“The use of tax brackets in the United States dates back to the introduction of the modern income tax in 1913,” says Andrew Latham, a certified financial planner and editor of the financial site SuperMoney. “Initially, the tax was 1% on income over $3,000 for single filers and $4,000 for married filers. However, the Revenue Act of 1916 introduced a graduated tax system with 14 tax brackets and rates ranging from 2% to 15%.”

Today, that system has been whittled down to just seven brackets, but the concept is the same. “As your income increases, so does your tax rate,” explains Latham.

You can now learn more about tax brackets (and how to file correctly based on these brackets) using tax preparation experts.

What are the tax brackets for 2022?

The IRS changes tax brackets throughout the year. For 2022, the agency made slight adjustments to the minimum taxable income thresholds that determine each bracket. As of 2021 these are 10% for the lowest earners and 37% for the highest earners.

“The updated tax brackets for 2022 reflect adjustments for inflation and changes in tax policy,” Latham said. “They are slightly higher than in 2021, which could benefit taxpayers by allowing more income to be taxed at a lower rate.”

See below to find your 2022 tax bracket:

Historically, tax brackets for low income earners have not changed significantly. Going back to the 1970s, the lowest tax bracket has ranged from 10% to 14%, depending on the year. At the high end, there was much more disparity. In the early 70s, for example, top earners paid a 70% tax rate.

How tax brackets affect your return

If you end up in a higher tax bracket than last year, don’t worry. It could mean though Pay more in taxes As you might expect, there are many factors that can affect your tax burden.

For one, tax brackets are progressive, so you don’t pay the same rate on all of your earnings. For example, if you earn $200,000 in 2022, your taxes would look like this:

• 10% on the first $10,275
• 12% on the next $31,500
• 22% on the next $47,300
• 24% on the next $80,975
• 32% on last $29,950

“It’s very common for people to be confused by tax brackets,” says Brian Harshman, founder of BSH Accounting. If you are in the 22% tax bracket, your entire $100,000 salary is not taxed at 22%. Your average tax rate is 14.77%.”

There are also deductibles to consider. These reduce your taxable income and subsequently, the tax bracket you fall into. For the 2022 tax year, the IRS increased the standard deduction to $12,950 for single taxpayers and $25,900 for married couples filing their returns jointly. If you claim dependent Or itemize your deductions, you’ll be able to lower your income (and tax bracket) even more.

The team at TurboTax can help you understand how tax brackets affect your return and how you can get a refund. Get started with them here now!

Your tax refund is maxed out

If you want to minimize the impact of any tax bracket changes you’ve experienced — or maximize the refund you’re eligible for, consider consulting with a tax professional in your area. They can help you determine what deductions, credits and other incentives you may qualify for.