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How Federal Income Tax Brackets Work. Say a married couple, filing jointly, in 2016, had a taxable income of $175,000. Each dollar over $151,900âor $23,100âwould fall into the 28% federal income tax bracket. However, the couples' total federal tax would have been $35,986âjust about 20%, of their adjusted gross income.
2017 Tax Brackets. Every year, the IRS adjusts more than 40 tax provisions for inflation. This is done to prevent what is called âbracket creep.â This is the phenomenon by which people are pushed into higher income tax brackets or have reduced value from credits or deductions due to inflation, instead of any increase in real income. The IRS uses the Consumer Price Index (CPI) to calculate the past yearâs inflation and adjusts income thresholds, deduction amounts, and credit values accordingly.