Here in the good ol’ U.S. of A., pretty much everybody has to pay their fair share of income tax—which is a tax the government collects from the money earned by businesses and individuals throughout the year.

And it’s important to understand that our tax system is progressive—which is just fancy tax talk that means you’ll pay more in income taxes as your income increases.

Figuring out how much you owe in taxes takes a little bit of math, but don’t worry—we’ll walk you through it one step at a time. 

Taxable Income

First, let’s talk about your taxable income. Your taxable income is the portion of your gross income (aka the amount of money you make before taxes and other deductions are taken out of your paycheck) that the IRS says you have to pay income taxes on.

Taxable income comes in all shapes and sizes—from earned income (your salary and holiday bonuses, for example) to unearned income (things like canceled debts and lottery winnings).

Here are some of the most common forms of taxable income you’ll need to report to the IRS:

• Wages and salaries
• Commissions
• Freelance earnings
• Bonuses and tips
• Rental income
• Interest or dividends from investments
• Prize winnings
• Bartered services
• Canceled debt
• Unemployment income

But the good news is, you can lower your taxable income through something called tax deductions. We’ll talk more about tax deductions later, but here’s a basic example.

Let’s say you’re single and your gross income for 2023 was $113,850. One way to lower your taxable income is to take the standard deduction, which is $13,850 for single filers. That one deduction lowers your taxable income to $100,000. If you don’t take any other deductions, that’s the number you’ll use to calculate how much you owe.

Tax Rates and Tax Brackets

Now that you know what your taxable income is, you can figure out which tax bracket you’re in (which is based on your taxable income and filing status). Your tax bracket is important because it’ll show you what your tax rate is (that’s the percentage of your taxable income you’ll pay in taxes).

Here are the tax rates and tax brackets for the 2023 tax year:

Calculating Your Tax Bill

Alright, you know what your taxable income is. You know what tax bracket you’re in and what your tax rate is. Now you have all the information you need to figure out how much you owe in taxes.

If you’re married filing jointly and your household taxable income (again, that’s the portion of your total income that can be taxed) is $100,000, that puts you in the 22% tax bracket. But that doesn’t mean all of your income is taxed at 22%.

That’s because U.S. tax rates are marginal, which just means each tax rate applies to only a specific part of your income. Some of your income is taxed at 10%, another part of it is taxed at 12%, and so on—depending on how high your income goes.

So for this example, after all the damage is done, you and your spouse owe $12,615 in taxes for the 2023 tax year. Here’s how the numbers break down:

That’s a lot of information to process. If you have questions about how much you owe in income taxes this tax season, you might want to get in touch with a trustworthy tax advisor who can help you figure out your numbers.