Taxes can feel confusing, especially when terms like tax brackets come into play. But here’s the deal: understanding how tax brackets work can help you maximize your savings and plan your finances effectively. In this guide, we’ll break down the basics of tax brackets, how they work in the U.S. and California, and what they mean for your income.
At its core, a tax bracket determines how much tax you pay on different portions of your income. The U.S. tax system, along with California’s, is progressive, meaning the more you earn, the higher percentage of taxes you pay on income above specific thresholds. But here's the key: you don’t pay the highest tax rate on all your income, only on the amount that falls within each bracket.
For 2024, the federal tax brackets are divided into seven income ranges, with rates from 10% to 37%. The more you earn, the higher the rate applied to the portion of your income that exceeds each threshold.
Let’s break it down:
Tax RateSingle FilersMarried Filing Jointly10%Up to $11,000Up to $22,00012%$11,001 to $44,725$22,001 to $89,45022%$44,726 to $95,375$89,451 to $190,75024%$95,376 to $182,100$190,751 to $364,20032%$182,101 to $231,250$364,201 to $462,50035%$231,251 to $578,125$462,501 to $693,75037%Over $578,126Over $693,751
Here’s how it works: let’s say you’re a single filer with a taxable income of $70,000. You wouldn’t pay 22% on the entire amount. Instead, you’d pay:
Your total federal tax liability would be $10,715—not 22% of $70,000. This progressive system ensures that only portions of your income are taxed at the higher rates, not your entire earnings.
California follows a similar progressive tax system, but with its own set of tax brackets and rates that vary significantly from the federal structure. California has nine tax brackets with rates ranging from 1% to 13.3% for high-income earners.
Here are California’s tax brackets for 2024 for single filers:
Tax RateSingle FilersMarried Filing Jointly1%Up to $10,738Up to $21,4762%$10,739 to $25,222$21,477 to $50,4454%$25,223 to $39,215$50,446 to $78,4306%$39,216 to $51,767$78,431 to $103,5348%$51,768 to $263,222$103,535 to $526,4449.3%$263,223 to $315,866$526,445 to $631,73210.3%$315,867 to $525,050$631,733 to $1,050,09911.3%$525,051 to $1,050,099$1,050,100 to $2,100,19812.3%Over $1,050,100Over $2,100,20013.3%Over $1,312,800 (mental health surcharge)N/A
Let’s say you’re a single filer in California with taxable income of $80,000. Here’s how your tax would break down:
Your total California tax liability would be $3,959—again, not 8% of $80,000, but a progressive accumulation across the different income brackets.
Understanding your tax brackets allows you to make strategic decisions to reduce your taxable income and take advantage of tax-saving opportunities. Here are a few strategies to consider:
Tax brackets don’t just dictate what you owe—they also give you the opportunity to plan strategically around how much of your income is taxed at different rates. By understanding the brackets, you can make smarter financial decisions, like adjusting income distributions or investments, to keep your taxes as low as possible.
Whether you’re managing a small business or looking to optimize your personal taxes, understanding how tax brackets work is the first step toward minimizing your tax liability and keeping more of your hard-earned money.
At JMKeehn, we specialize in helping our clients navigate the complexities of federal and state tax brackets, identify tax-saving opportunities, and optimize their finances. Let’s work together to ensure you’re making the most of your income and keeping as much of it as possible. Reach out today to learn how we can help you develop a customized tax strategy that works for you.
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