Taxes are one of the greatest expenses you’ll pay over your lifetime, and yet, they’re one of the least understood. We often receive questions from clients regarding tax brackets and tax rates in particular. While high earners almost inevitably pay more in income taxes than low earners, the headline numbers can be misleading. So we want to take a moment to break down tax brackets, including practical examples to show how they work.
Progressive taxation: How income tax brackets work
The U.S. has a progressive taxation system. The more you earn, the farther your tax rate progresses. This means that the bracket you consider to be your tax rate (say 35%, for example) really only refers to the last dollars you earned. Essentially, the first $100,000 earned are taxed at a different rate than the next $100,000.
So what does that mean? Consider these examples.
Sarah might think her tax rate is 22%, since that’s the tax bracket she falls in. In reality, her tax bill totals less than 17% of her taxable income.
Sarah falls in love with John.
John makes $350,000 in taxable income. His tax bill totals nearly $91,000 using 2025 numbers, or just about 26%.
Combined, Sarah and John would pay more than $106,000 to the IRS as single filers, which equals roughly 24% Things change if they get married and file jointly:
The couple falls into the 32% tax bracket, but their actual tax is less than 22%. Plus, filing jointly reduces their bill by almost $10,000.
This is known as a marriage benefit, and it’s common when there’s a big discrepancy in income.
On the other hand, couples with similar incomes may pay more when filing jointly. This is commonly referred to as a marriage penalty.
Paying income taxes: What you need to know about withholding
With every paycheck, your employer holds back a certain amount of money to help cover your tax obligation. This is known as tax withholding. The amount of money withheld is based on the information you provide your employer on your Form W-4. This is typically completed when you first join a company, though it can be updated at any time. The IRS offers a Tax Withholding Estimator that you can use to determine how much tax should be withheld from your paychecks.
It’s common to stop thinking about withholding details after you hand in that initial paperwork, but it may be worth some additional consideration.
Your employer only withholds however much you indicate on your W-4. If you’re not including additional taxable income sources, like freelance or contract work, royalties, rental income, or dividends, you may still have additional tax liabilities that are not being accounted for. This can result in hefty and unexpected tax bills come tax time.
On the other hand, if your employer withholds too much tax, you’re likely receiving a sizable tax refund each April. While being handed a large check from the IRS might seem like a good thing, it can actually detract from your greater financial goals. A refund means that, essentially, you’re loaning money to the U.S. federal government, interest-free. But by adjusting your withholdings and reducing excess tax withholdings, you can put those additional funds toward your investment strategy, retirement savings, or other goals.
Charitable Giving and Taxes
Philanthropy and charitable giving are core to how we operate at Revo, and many of our clients feel the same. While it can feel great to donate to a good cause spontaneously, there are benefits to incorporating philanthropy into your overall financial plan.
Not only can a thoughtful and custom charitable giving strategy give you the opportunity to reduce your taxable income, but it can help your donation stretch farther for your charity of choice.
Even if you aren’t sure how much to give or where to donate to right now, you can still make tax-conscious decisions to prepare. For example, if you have surplus income you wish to donate to charity, but aren’t sure which organization you want to support, you might use a donor-advised fund. This would help reduce your income now while also giving you a bit more time to figure out where exactly you want your donations to go. This is just one of many strategies we can employ to both maximize the benefit to the charity and the tax break to you—we always tailor our recommendations to your specific circumstances.
Your journey to charitable giving is unique to your personal values and beliefs. That means your giving strategy should be unique as well. If you want to re-think your charitable giving strategy in the new year, we’d love to help support you.