In 2023, the federal income tax will be based off of seven tax brackets that will range from 10% to 37%. Those earning less than $9,950 per year will fall into the 10% bracket, while those making between $9,951 and $40,525 will be subject to a 12% rate. Those making more than $523,600 will fall into the highest, 37%, bracket. Various deductions and credits may help taxpayers reduce their liabilities, depending on their unique financial situation. It’s important to take time to review the rates and brackets to ensure you’re being taxed at the right rate for your income.
Federal income tax applies to the income earned by individuals, corporations, trusts, and other entities. Taxpayers are required to file an annual income tax return to determine their tax liability. The income tax rate for individuals is progressive, meaning the tax rate increases as income increases. The government also collects a variety of taxes on businesses, such as payroll taxes, capital gains taxes, estate and gift taxes, and excise taxes. All taxpayers must pay federal income tax, however, certain people may qualify for certain credits and deductions to reduce their tax liability. Understanding the rules of the federal income tax system can help taxpayers make financial decisions that minimize their tax burden.