Taxes
Understanding US income tax in plain English: brackets, deductions and credits, filing your return and taxes on side income.
Income tax basics
Understanding your taxes
Taxes feel complicated, but the basics of how US income tax works are simpler than they seem. Knowing how brackets, deductions and credits fit together helps you avoid surprises, keep more of what you earn and file with confidence.
How US income tax works explains taxable income, marginal tax brackets, the standard deduction versus itemizing, common credits, and what to expect when you file.
Tax rules affect many other money decisions:
- Retirement savings: contributions to 401(k)s and IRAs can lower your tax bill now or in retirement; see retirement accounts explained.
- Side income: earnings from gig work and selling online may be taxable, and you may owe self-employment tax; see side hustles.
- Refunds: a tax refund is a great chance to boost your emergency fund or pay down debt.
Tax brackets and many other figures change each year. We update our guides every January, but always check IRS.gov for current rules, and consider a qualified tax professional for complex situations.
Common questions
No. The US uses marginal tax brackets, so only the part of your income above each threshold is taxed at the higher rate. A raise always leaves you with more money after federal income tax, even if part of it falls into a higher bracket.
Take whichever is bigger. Most taxpayers take the standard deduction. Itemizing makes sense when your deductible expenses, such as mortgage interest, state and local taxes and charitable gifts, add up to more than the standard deduction.
Individual federal tax returns are usually due on April 15, or the next business day if it falls on a weekend or holiday. You can request an extension to file, but any tax you owe is still due by the April deadline.