Tax Basics: Everything You Need to Know About Income Taxes

How Income Taxes Work

The U.S. uses a progressive tax system—higher income gets taxed at higher rates. But it's not as simple as "I'm in the 24% bracket, so I pay 24% on everything."

Marginal vs. Effective Tax Rates

Marginal rate: The rate on your last dollar of income (your tax bracket)

Effective rate: Your actual percentage paid (total tax ÷ total income)

Because of progressive brackets, your effective rate is always lower than your marginal rate.

2024 Federal Tax Brackets (Single Filers)

| Taxable Income | Tax Rate |

|----------------|----------|

| $0 - $11,600 | 10% |

| $11,601 - $47,150 | 12% |

| $47,151 - $100,525 | 22% |

| $100,526 - $191,950 | 24% |

| $191,951 - $243,725 | 32% |

| $243,726 - $609,350 | 35% |

| $609,351+ | 37% |

Example Calculation

If you earn $80,000:

• First $11,600 taxed at 10% = $1,160
• $11,601 to $47,150 taxed at 12% = $4,266
• $47,151 to $80,000 taxed at 22% = $7,227
• Total tax: $12,653
• Effective rate: 15.8% (not 22%)

Key Tax Terms

Gross Income

All income before any adjustments—wages, investments, business income, etc.

Adjusted Gross Income (AGI)

Gross income minus "above-the-line" deductions (IRA contributions, student loan interest, etc.). Many tax benefits phase out based on AGI.

Taxable Income

AGI minus deductions (standard or itemized). This is what you actually pay taxes on.

Tax Credits vs. Deductions

• Deductions reduce taxable income (save you tax rate × deduction)
• Credits reduce tax directly dollar-for-dollar (more valuable)

Example: If you're in the 22% bracket:

• $1,000 deduction saves $220
• $1,000 credit saves $1,000

Standard Deduction vs. Itemizing

Standard Deduction (2024)

• Single: $14,600
• Married Filing Jointly: $29,200
• Head of Household: $21,900

When to Itemize

Only itemize if your deductions exceed the standard deduction. Common itemized deductions:

• Mortgage interest
• State and local taxes (SALT, capped at $10,000)
• Charitable donations
• Medical expenses (over 7.5% of AGI)

About 90% of taxpayers use the standard deduction.

Filing Status Options

Single

Unmarried with no dependents

Married Filing Jointly

Usually best for married couples—combines income and doubles standard deduction

Married Filing Separately

Sometimes beneficial for specific situations (income-driven loan repayment, liability separation)

Head of Household

Unmarried with qualifying dependents—better rates than single

Important Tax Deadlines

• January 15: Q4 estimated tax payment due
• April 15: Tax return due (or extension)
• April 15: Q1 estimated tax payment due
• June 15: Q2 estimated tax payment due
• September 15: Q3 estimated tax payment due
• October 15: Extended return deadline

Common Tax Forms

W-2

Reports wages from employers. You'll receive this by January 31.

1099 Forms

Reports other income (freelance, investments, interest, etc.)

• 1099-NEC: Freelance/self-employment income
• 1099-INT: Interest income
• 1099-DIV: Dividend income
• 1099-B: Investment sales

Form 1040

The main individual tax return form.

State Taxes

Most states also tax income. Rates vary from 0% (Texas, Florida) to over 13% (California top rate). Some states have flat rates; others are progressive like federal.

Tips for First-Time Filers

1. Gather all documents before starting (W-2s, 1099s)
2. Use tax software for guided filing (TurboTax, H&R Block, FreeTaxUSA)
3. Check for free filing options (IRS Free File for income under $79,000)
4. Don't miss credits like Earned Income Credit, education credits
5. Set up direct deposit for faster refund

Key Takeaways

1. Tax brackets are marginal—you don't pay one rate on all income
2. Standard deduction works for most people
3. Credits are more valuable than deductions
4. AGI affects many tax benefits
5. Use tax software or a professional if your situation is complex