Are Tax Brackets Based on Gross Income or Adjusted Gross Income?

Do you know the difference between being in the $70,000 tax bracket and earning a $70,000 salary after taxes? Under the U.S. progressive tax system, you'll pay more in taxes as your income increases. Your personal tax rate is also determined by your filing status and your marital status, which are used to determine the correct tax bracket (a category that determines how much income taxes you are required to pay). To answer the question, you would be better off earning the $70,000 salary after taxes than taking whatever is left after paying tax on $70,000 income.

Gross income is all the income you earn during the tax year before any adjustments are made or any taxes are taken out, as long as that income is not tax-exempt (such as life insurance proceeds or child support payments). Gross income includes any Social Security or retirement benefits you receive that are taxable, income from a rental property, alimony payments, unemployment and any capital gains from the sale of assets. For example, if your household made $75,000 in 2017 from wages and you also received taxable Social Security disability benefits of $10,000, your total gross income is $85,000.

Adjusted gross income is calculated by subtracting certain deductions and expenses from your gross income. These include education expenses, moving expenses, health savings account deductions, alimony paid, tuition expenses, student loan interest and certain business expenses. For example, if your gross income is calculated to be $85,000 and you deduct $2,000 for moving expenses, $3,000 for student loan interest paid and $10,000 for alimony paid, your adjusted gross income is $70,000.

Tax brackets are determined by taxable income, not by gross income or adjusted gross income. Taxable income is any money you made during the tax year on which you are required to pay income taxes. Taxable income may not include a portion or all of Social Security benefits or retirement distributions made from pre-tax retirement accounts. Taxable income can be reduced by deductions and credits, so your total taxable income is usually less than your gross income or even your adjusted gross income. It is your taxable income that determines your tax bracket.

Income taxes are assessed in tiers based upon the tax brackets. The portion of your income that corresponds with a particular bracket is taxed at that rate, and the totals are aggregated to determine your total tax for the year. The following tax table is for single taxpayers for 2018.

• $0 to $9,525: 10 percent tax
  
• $9,525 to $38,700: 15 percent tax
  
• $38,700 to $82,500: 22 percent tax
  
• $82,500 to $157,500: 24 percent tax
  
• $157,500 to $200,000: 32 percent tax
  
• $200,000 to $500,000: 35 percent tax
  
• $500,000 and up: 37 percent tax

To calculate your taxable income using this federal tax table, you would first look at your taxable income. The tax due would be calculated as follows for a single taxpayer:

• On the first $9,525, the tax rate is 10 percent.
  
• On the next $9,526 to $38,700 in taxable income, a single taxpayer will pay $952.50 (10 percent of $9,525 + 12 percent of any amount over $9,526)
  
• On the next $38,701 to $82,500 in taxable income, the income tax will be $4,453 + 22 percent of the amount that is over $38,700.
  
• Individuals who have $82,501 to $157,500 in taxable income are responsible for paying $14,089.50 + 24 percent of any amount over $82,500.
  
• Someone who has a taxable income ranging from $157,501 to $200,000 will pay $32,089.50 + 32 percent of the amount over $157,500.
  
• For the next $200,001 to $500,000 in taxable income, the tax payable is $45,689.50 + 35 percent of the amount over $200,000.
• If the taxable income is $500,001 or more, income tax payable is $150,689.50 + 37 percent of the amount over $500,00.

The federal tax table for married couples, filing jointly are as follows:

• $0 to $19,050: 10 percent tax
  
• $19,051 to $77,400: 12 percent tax
  
• $77,401 to $165,000: 22 percent tax
  
• $165,001 to $315,000: 24 percent tax
  
• $315,001 to $400,000: 32 percent tax
  
• $400,001 to $600,000: 35 percent tax 
• $600,001 and up: 37 percent tax

Here is the tax table for married couples filing separately for 2018:

• $0 to $9,525: 10 percent tax
  
• $9,526 to $38,700: 12 percent tax
  
• $38,701 to $82,500: 22 percent tax
  
• $82,501 to $157,500: 24 percent tax
  
• $157,501 to $200,000: 32 percent tax
  
• $200,001 to $300,000: 35 percent tax
• $300,001: 37 percent tax

Married taxpayers filing as the head of their household would use the following tax table for 2018:

• $0 to $13,600: 10 percent tax
  
• $13,601 to $51,800: 12 percent tax
  
• $51,801 to $82,500: 22 percent tax
  
• $82,501 to $157,500: 24 percent tax
  
• $157,501 to $200,000: 32 percent tax
  
• $200,001 to $500,000: 35 percent tax
• $500,001: 37 percent tax

The tax brackets for the 2017 tax year for a single taxpayer are:

• $0 to $9,325: 10 percent 
  
• $9,325 to $37,950: 15 percent 
• $37,950 to $91,900: 25 percent 
• $91,900 to $191,650: 28 percent 
• $191,650 to $416,700: 33 percent 
• $416,700 to $418,400: 35 percent
• $418,400 and beyond: 39.6 percent 

Tax brackets for married taxpayers who file jointly for the 2017 year are:

• $0 to $18,650: 10 percent  
  
• $18,651 to $75,900: 15 percent
• $75,900 to $153,100: 25 percent
• $153,101 to $233,350: 28 percent
• $233,351 to $416,700: 33 percent
• $416,701 to $470,700: 35 percent
• $470,701 and beyond: 39.6 percent

Income tax brackets for head of household taxpayers in 2017 were:

• $0 to $13,350: 10 percent
  
• $13,351 to $50,800: 15 percent
  
• $50,801 to $131,200: 25 percent
  
• $131,201 to $212,500: 28 percent
  
• $212,501 to $416,700: 33 percent
  
• $416,701 to $444,500: 35 percent
  
• $444,501 and beyond: 39.6 percent

If you have questions about calculating your tax rate or using the federal tax tables, contact an income tax professional for help.