The U.S. federal government collects taxes based on income. The structure they collect these taxes are based on marginal tax brackets. Looking at the 2020 federal tax brackets below, a single person’s first $9,875 of taxable income is taxed at 10%, while the next $30,250 (40,125 – 9,875) is taxed at a rate of 12%. As someone makes more money and moves up the brackets, they pay more and more tax per dollar earned.
2020 Federal Tax Brackets
| Tax rate | Single | Married Filing Jointly (MFJ) | Married Filing Separately (MFS) | Head of Household (HOH) |
| 10% | $0 to $9,875 | $0 to $19,750 | $0 to $9,875 | $0 to $14,100 |
| 12% | $9,876 to $40,125 | $19,751 to $80,250 | $9,876 to $40,125 | $14,101 to $53,700 |
| 22% | $40,126 to $85,525 | $80,251 to $171,050 | $40,126 to $85,525 | $53,701 to $85,500 |
| 24% | $85,526 to $163,300 | $171,051 to $326,600 | $85,526 to $163,300 | $85,501 to $163,300 |
| 32% | $163,301 to $207,350 | $326,601 to $414,700 | $163,301 to $207,350 | $163,301 to $207,350 |
| 35% | $207,351 to $518,400 | $414,701 to $622,050 | $207,351 to $311,025 | $207,351 to $518,400 |
| 37% | over $518,400 | over $622,050 | over $311,025 | over $518,400 |
