How Federal Income Tax Brackets Work in 2026 (With Examples)
The most persistent myth in personal tax is that moving into a higher bracket taxes all your income at the higher rate. It does not. Each bracket taxes only the slice of income inside it. A raise is never a pay cut via federal income tax — the maths below shows why.
A worked example (2026, single filer)
The standard deduction comes off first: $16,100 for a single filer in 2026. On an $85,000 salary, taxable income is $68,900. Tax is then built in slices: 10% on the first $11,925 ($1,193), 12% on the next slice up to $48,475 ($4,386), and 22% on the remainder up to $68,900 ($4,494). Total federal income tax: about $10,072 — an effective rate of 11.8% of gross pay, even though the marginal bracket is 22%.
Now add a $5,000 raise. Only the new $5,000 is taxed at 22% ($1,100); the rest of the income is taxed exactly as before. You keep $3,900 of the raise before FICA and state tax. The marginal rate is the price of the next dollar; the effective rate is what you actually pay on average. Confusing the two leads people to refuse overtime, fear bonuses and misjudge job offers.
- Withholding is an estimate settled at filing — a refund means you overpaid during the year, not that you were taxed less.
- Pre-tax 401(k) and HSA contributions reduce taxable income in the top slice first — they save tax at your marginal rate.
- FICA (Social Security + Medicare, 7.65%) applies on top of income tax and is mostly flat, with a Social Security wage cap.
Questions, answered
Why is my bonus withheld at a higher rate?
Bonuses are often withheld at a flat 22% supplemental rate. That is withholding, not the tax itself — it settles to your real marginal rate when you file.
Do state taxes use brackets too?
Most do, with their own rates and deductions; a few states use a flat rate and nine levy no tax on wages at all. Your state guide covers the structure where you live.
Reviewed by Tahir Shehzad, ACMA. Figures are reviewed against the sources on our methodology page. This guide is education, not personal financial advice.