How Federal Income Tax Works
The U.S. uses a progressive marginal tax system — meaning different portions of your income are taxed at different rates. You don't pay your top rate on all your income; you pay it only on the dollars that fall into that bracket. This is the most misunderstood aspect of income taxes.
For example, a single filer with $60,000 of taxable income in 2026 pays 10% on the first $12,400, 12% on the next $38,000, and 22% on the remaining ~$9,600. Their marginal rate is 22%, but their effective rate is lower — around 14%.
Standard Deduction vs. Itemizing
Before applying the brackets, you subtract either the standard deduction or your itemized deductions — whichever is larger. Most people take the standard deduction because it's simpler and often larger than what they could itemize.
| Filing Status | 2025 | 2026 |
|---|---|---|
| Single | $15,750 | $16,100 |
| Married Filing Jointly | $31,500 | $32,200 |
| Head of Household | $23,625 | $24,150 |
| Married Filing Separately | $15,750 | $16,100 |
Itemized deductions include mortgage interest, state and local taxes paid (SALT — capped at $40,000 for 2025–2026 under the One Big Beautiful Bill Act, up from the prior $10,000 limit), charitable contributions, and certain medical expenses above 7.5% of AGI.
Self-Employment Tax
If you have self-employment income, you owe SE tax in addition to income tax. SE tax covers both the employee and employer share of Social Security (12.4%) and Medicare (2.9%) — a combined 15.3% — applied to 92.35% of your net self-employment income. The good news: you can deduct half of SE tax from your gross income, which reduces your income tax bill.
Effective Rate vs. Marginal Rate
Your marginal rate is the rate on your last dollar of taxable income — it's the rate people usually quote when they say "I'm in the 22% bracket." Your effective rate is your total tax divided by your total income. The effective rate is always lower than the marginal rate because lower portions of your income are taxed at lower rates.
The effective rate is the more meaningful number for financial planning — it tells you what percentage of every dollar you actually kept.
Frequently Asked Questions
Does this calculator include tax credits?
No — credits like the Child Tax Credit, Earned Income Credit, or education credits are not included. These directly reduce your tax bill dollar-for-dollar and could meaningfully lower your actual tax owed compared to this estimate. Use this as a starting point, then subtract any credits you qualify for.
What about capital gains?
Long-term capital gains are taxed at preferential rates (0%, 15%, or 20%) — not the ordinary income brackets shown here. Use our Capital Gains Tax Calculator for investment income.
Why is there a difference between this estimate and my actual tax return?
This calculator uses a simplified model: gross income minus deduction equals taxable income. Your actual return may differ due to above-the-line deductions (student loan interest, IRA contributions, health insurance for self-employed), tax credits, alternative minimum tax, or investment income at preferential rates.