Income Tax Bracket Information
The United States Treasury derives most of its revenue from the personal income tax. In exchange for the services that are rendered to us by the government, we give them a certain percentage of our income. Because our income tax system is progressive, meaning that people who make more income pay more taxes, a system of brackets has been set up to determine how much tax is due depending on how much income a given person earns.
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Tax Brackets
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As of the 2010 tax year, there are six brackets. Depending on how much income you earn, you will pay tax at rates of 10, 15, 25, 28, 33 or 35 percent. Furthermore, these brackets can change. One example is that in 2011, the top tax rate will go from 35 to 39.6 percent due to the expiration of tax cuts implemented during President George W. Bush's administration.
How Brackets Work
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Each progressively higher level of income falls into a certain level of taxation. For example, a married couple has a taxable income of $67,900 per year filing in the 2009 tax year. Their first $16,700 of income would fall into the 10 percent bracket and be taxed at that rate. The remainder of their income would be taxed at a 15 percent rate, since it falls into that bracket. Their total tax would be $9,350, for a total overall rate of 13.8 percent.
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Marginal Tax Rates
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To understand marginal tax rates, continue the example of the couple. If they made an additional $10,000 in income, it would fall into the next higher bracket, and be taxed at a rate of 25 percent. Their total tax would increase to $11,850 for a blended rate of 15.2%. However, if they were to earn an additional dollar of income, it would be taxed at 25%, making that their marginal tax rate. When people talk about their bracket, they are usually talking about their marginal tax rate--what they pay on their last dollar of income.
Falling into a Bracket
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Your income is not the only determinant of your tax rate. Although brackets are based on income levels, there are different charts depending on your filing status. For instance, married couples who file jointly will move into higher brackets later than single people. There are also brackets for heads of household as well as married people who file jointly.
Beyond Income Tax
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Tax brackets apply to a number of other taxes beyond income. In tax year 2009, the much-storied Alternative Minimum Tax also had two different brackets--26 percent and 28 percent. Corporations receive similar treatment. During most of the 2000-2010 decade, there were seven brackets ranging from 15 percent to as high as 39 percent.
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References
- Photo Credit tax forms image by Chad McDermott from Fotolia.com
