How US tax brackets work and what HR needs to know

Executive overview

Many employees misunderstand tax brackets, assuming their entire income is taxed at the highest rate they hit. The US uses a progressive tax system where only the dollars within each bracket are taxed at that bracket's rate. Filing status and income level together determine which brackets apply. HR can explain brackets and withholding basics, but must direct employees to an accountant for personalised tax advice.

Your tax bracket is not your tax rate — each dollar is taxed only at the rate of the bracket it falls into.

How progressive tax brackets work

• Seven federal brackets: 10%, 12%, 22%, 24%, 32%, 35%, 37%
• Rates rise as income rises; this is based on the principle of ability to pay
• Only the dollars within each bracket range are taxed at that bracket's rate
• Example: a single filer earning $75,000 pays 10% on the first $11,600, 12% on the next $35,549, and 22% on the remaining $27,850

2024 brackets for single filers

1. 10% — up to $11,600
2. 12% — $11,601 to $47,150
3. 22% — $47,151 to $100,525
4. 24% — $100,526 to $191,950
5. 32% — $191,951 to $243,725
6. 35% — $243,726 to $609,350
7. 37% — over $609,350

2024 brackets for married filing jointly

Thresholds are roughly double those for single filers.

1. 10% — up to $23,200
2. 12% — $23,201 to $94,300
3. 22% — $94,301 to $201,050
4. 24% — $201,051 to $383,900
5. 32% — $383,901 to $487,450
6. 35% — $487,451 to $731,200
7. 37% — over $731,200

Annual bracket adjustments and inflation

• The IRS adjusts brackets annually for inflation
• 2023 saw a ~7% increase — unusually high due to record inflation
• Employees who received no raise in 2023 may still have dropped into a lower effective bracket
• 2024 saw a 5.4% adjustment, signalling easing but sustained pressure on household finances
• HR should factor ongoing cost-of-living pressures into salary decisions

Supplemental wages

• Bonuses, commissions, severance, non-qualified stock option exercises, and vesting of restricted stock units are classified as supplemental wages
• The IRS taxes these differently from regular wages

HR's role in tax compliance

• Employers are legally required to withhold employment taxes
• HR can explain brackets, wage thresholds, and how W-4s are completed — but cannot advise on individual W-4 responses
• Always direct employees to an accountant or tax advisor for personal guidance
• Most organisations have an accountant review all tax-related filings