--- title: How Do Tax Brackets Work? description: Understand how marginal tax brackets work. Learn how each portion of your income is taxed at different rates. image: https://g4financialplanning.com/hubfs/AI-Generated%20Media/Images/three%20cartoon%20buckets%20with%20water%20in%20them-1.jpeg --- [Skip to content](https://g4financialplanning.com/dear-friend-in-finance/how-do-tax-brackets-work#main-content) [![G4 Financial Planning Logo. 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Published by [Henry Gibson-Garcia](https://g4financialplanning.com/dear-friend-in-finance/author/henry-gibson-garcia) on Jan 25, 2025 11:27:54 AM ![](https://g4financialplanning.com/hs-fs/hubfs/AI-Generated%20Media/Images/three%20cartoon%20buckets%20with%20water%20in%20them-1.jpeg?width=1024&height=450&name=three%20cartoon%20buckets%20with%20water%20in%20them-1.jpeg) *Dear Friend in Finance,* *I'm a bit worried. I just got a raise at work, and my co-worker told me that I shouldn't take it. He said that I'd be in a higher tax bracket, and that I'd end up losing money because I'd be paying more taxes. Why are taxes set up like this? It feels impossible to get ahead.* *Sincerely,* *Taxes are Taxing*   **Dear Taxes are Taxing,** I completely understand how confusing and frustrating tax brackets can feel. Thankfully, I have great news: this isn’t how tax brackets work! In the U.S., we use **marginal tax brackets.** This means higher tax rates only apply to the portion of your income within that specific bracket—not your entire income. Think of it like filling a series of buckets, each representing a tax bracket (e.g., 10%, 12%, 22%, 24%, etc.). Your income is like water that you pour into these buckets: 1. You fill the 10% bucket first. Once it’s full, you move to the 12% bucket. 2. When that’s full, you start pouring into the 22% bucket, and so on. 3. If you only have a small amount of water left when you start filling the 22% bucket, only that small amount is taxed at 22%. The rest in the other buckets is taxed at their lower rates. This means entering a higher tax bracket won’t suddenly apply the higher rate to all your income—just the dollars that spill into that bracket. If you’re concerned about minimizing taxes, a financial planner or tax professional can help you explore strategies like contributing to retirement accounts or using other deductions to reduce your taxable income. But the key takeaway is this: **you won’t lose money by moving into a higher tax bracket.** I hope this clears things up for you! 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