Your income is not all in the same tax bracket. It is not all taxed at the same percentage. Here's an illustration. (You cannot actually calculate your tax this way.)
For 2024, if you are married filing jointly, the first $23,200 of your joint taxable income is taxed at 10%. The next $71,100 of taxable income is taxed at 12%. The next $106,750 is taxed at 22%, and so on.
What happens when you claim the foreign earned income exclusion is that the excluded income fills up the lower-percentage brackets, although you don't actually pay the tax on it. But the excluded income pushes your other income, that's not excluded, up into the higher-percentage brackets. That's what's meant by "stacking" the non-excluded income on top of the excluded income, and that's why the tax on your non-excluded W-2 income increases.
When people say "we're in the 22% bracket" or "we're in the 24% bracket" they are talking about the highest bracket that any of their income falls in - the rate that applies to the last dollar of their income. It doesn't mean that all of their income is taxed at 22% or 24%.
The percentage steps are uneven: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. If a portion of your income gets pushed up from 22% to 24% the additional 2% tax would not make a dramatic difference. But if a large amount of income gets pushed from 12% to 22% or from 24% to 32% the additional tax could be significant.
