How Tax Brackets Really Work

Have you heard that one coworker (we all know who I’m talking about) that complains about getting stuck in a higher tax bracket because of a pay raise or bonus?

Have you ever wondered if there was any basis to that complaint?

Let us define our terms real quick. The IRS does use graduated tax rates, so that a household earning $20k annually is taxed at a lower rate than one earning $200k. There are 7 tax brackets with tax rates starting at 10% for taxable income below $12k, and topping out at 37% for income over $626k:

Tax bracket	Single - 2025 taxable income
10%	$0–$11,925
12%	$11,926– $48,475
22%	$48,476– $103,350
24%	$103,351– $197,300
32%	$197,301–$250,525
35%	$250,526–$626,350
37%	$626,351+

Astute readers will notice that is taxable income, not gross income. If your annual salary is $251k, you are not going to hit that 35% bracket. After deductions, you will likely top out somewhere in that 32% area.

Wait, some of you are thinking. I’m going to have to hand over 32% of $198k? Thankfully, no. Only the portion of your income over $197,300 is taxed at that rate. The first $11,925 is taxed at 10%, then $11,926-48,475 is taxed at 15% and so on.

The BattleTax goal is to always keep that tax bill as low as possible.