Step 1 — Ordinary income fills the regular brackets first. Wages, interest, IRA distributions, pensions, taxable Social Security, and short-term capital gains are taxed at the 10 / 12 / 22 / 24 / 32 / 35 / 37 % schedule.

Step 2 — Long-term capital gains and qualified dividends sit on top of that. Imagine a column of income with ordinary at the bottom and LTCG/QD stacked above it. The LTCG/QD layer is then taxed using its own three-bracket schedule, measured from the top of the ordinary stack upward.

Step 3 — The 0% / 15% / 20% breakpoints are taxable-income thresholds, not income thresholds. For Married Filing Jointly, the 0% bracket ends at $96,700 of total taxable income; the 15% bracket ends at $600,050. Anything above that is taxed at 20%.

Net Investment Income Tax (NIIT, an additional 3.8%) applies above $200K (single) / $250K (MFJ) MAGI and is computed separately on the main Tax Ledger.