How Tax Brackets Actually Work (You're Not Taxed at One Rate)

The federal income tax system is progressive, meaning different portions of your income are taxed at different rates — but only the portion of income within each bracket is taxed at that bracket's rate, not your entire income.

Your first dollars earned are taxed at the lowest bracket's rate. As your income rises past each threshold, only the additional income above that threshold is taxed at the next rate up. Every dollar you earn is still taxed at the rate for the bracket it falls into, not retroactively at your highest rate.

Your marginal tax rate is the rate applied to your next dollar earned — essentially, the highest bracket you've reached. Your effective tax rate is your total tax divided by your total income, a blended average that's always lower than your marginal rate in a progressive system.

When people say they're 'in the 22% bracket,' they usually mean their marginal rate — but their effective rate, the actual percentage of their total income paid in tax, is meaningfully lower.

Since only the income within each new bracket is taxed at that bracket's higher rate, and all your prior income remains taxed at the lower rates it already fell into, a raise always results in more total after-tax income — even if a portion of the raise is taxed at a higher marginal rate than the rest of your income.