RiskPicksWhat is a Tax Bracket?
A tax bracket is a range of income that is taxed at a specific rate. The United States uses a progressive tax system, meaning you do not pay one flat rate on all your income. Instead, different portions of your income fall into different brackets, and each portion is taxed at that bracket's rate.
How progressive brackets work
A common misconception is that if you are "in the 24% bracket," all your income is taxed at 24%. That is not how it works. Only the income within that bracket is taxed at 24%. The income below it is taxed at the lower rates.
2025 Federal Tax Brackets (Single Filer)
- 10%: first $11,925
- 12%: $11,926 to $48,475
- 22%: $48,476 to $103,350
- 24%: $103,351 to $197,300
- 32%: $197,301 to $250,525
- 35%: $250,526 to $626,350
- 37%: over $626,350
Why traders need to understand brackets
- Short-term capital gains (trades held under 1 year) are taxed as ordinary income, meaning they are added to your income and taxed at your bracket rate
- Day trading profits are almost always short-term capital gains
- A profitable trading year can push you into a higher bracket, so your effective tax rate on trading gains matters when calculating your real take-home profit
If your salary puts you in the 22% bracket and your trading profits push you into the 24% bracket, only the portion above the 22% threshold is taxed at 24%. You do not suddenly owe 24% on everything.