Tax Center / Tax rates
Tax rates.
A plain-language overview of how federal tax rates actually work, from the progressive income brackets to the preferential rates on long-term gains. The structure below is stable year to year, but the specific dollar figures adjust for inflation, so always confirm the current-year numbers with the IRS.
Federal income tax is progressive
Ordinary income is taxed in tiers, not all at one rate. The current federal structure has seven brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%), and only the income that falls within each tier is taxed at that tier's rate. That means moving into a higher bracket raises the rate on your next dollar of income, not on all of it. The dollar thresholds where each bracket begins adjust every year for inflation and differ by filing status. See the IRS federal income tax rates and brackets for the current-year figures.
Long-term capital gains & qualified dividends
Gains on assets held longer than a year, along with qualified dividends, are generally taxed at preferential rates of 0%, 15%, or 20%, depending on your taxable income. At higher income levels, an additional 3.8% net investment income tax may also apply. Short-term gains, by contrast, are taxed as ordinary income. The income thresholds that determine which rate applies are indexed annually; confirm the current figures with the IRS guidance on capital gains.
Standard deduction & annual adjustments
Your marginal rate applies to taxable income, what's left after the standard deduction or itemized deductions. The standard deduction and many other figures, including retirement contribution limits and the gift and estate exclusions, are indexed and rise most years. Because these amounts change annually, we don't publish specific numbers here; look up the current-year figures in the IRS annual inflation adjustments.
Self-employment & payroll taxes
Income tax isn't the whole picture. Social Security and Medicare taxes (withheld as FICA for employees, or paid as self-employment tax by the self-employed) apply on top of income tax. The Social Security portion applies only up to an annual wage base that adjusts each year, while the Medicare portion has no cap and carries an additional surtax at higher incomes. See the IRS self-employment tax overview for the current rates and wage base.
These figures change every year, and the rate that applies to you depends on your filing status and taxable income; the brackets above are a general guide, not tax advice. For the specific current-year numbers, see the IRS, or contact the firm to talk through your situation.
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