Tax Brackets

See Also:
Marginal Tax Rate
Prepaid Income Tax
Ad Valorem Tax
Deferred Income Tax
Cash Flow After Tax

Tax Brackets

What are tax brackets? Tax brackets are levels of taxation determined by income. Individuals with income falling within a certain tax bracket pay taxes according to the stated rate for that bracket. Typically, lower income is taxed at a lower rate and higher income is taxed at a higher rate. The idea is that people making more money can afford to pay more taxes and still live comfortably while people making less money have less income available to pay towards taxes. Tax brackets are a component of progressive tax rate systems.

Tax Bracket Example on 2008’s Tax Rates

Here is a tax bracket example based on 2008’s tax rates. Let’s look at three individuals with three different incomes. The first person earns annual taxable income of $20,000 dollars. The second earns annual taxable income of $50,000 dollars. The third person earns annual taxable income of $150,000 dollars.

The tax brackets for this hypothetical example are as follows. Individuals making less than $25,000 dollars of annual taxable income must pay taxes at the rate of 15%. Individuals earning income between $25,001 and $50,000 dollars must pay taxes at a rate of 20%. And individuals making more than $50,001 dollars of annual taxable income must pay 25% taxes.

In this example, the first individual, the person with a salary of $20,000 who pays taxes according to the first tax bracket tax rate, pays taxes of 15%. This amounts to $3,000 dollars of taxes due for that individual. The second individual, the person earning $50,000 dollars who is taxed at 20% ends up paying taxes of $10,000. While the third individual, the one making $150,000 dollars and paying taxes at a rate of 25% ends up paying $37,500 dollars. Of course, these are not the real tax brackets in the U.S. or elsewhere, they are merely hypothetical examples for illustrative purposes.

US Tax Brackets 2008

Tax Rate      Single                    Married Filing Jointly 
10%           $0 - $8,025               $0 - $16,050 
15%           $8,026 - $32,550          $16,051 - $65,100 
25%           $32,551 - $78,850         $65,101 - $131,450 
28%           $78,851 - $164,550        $131,451 - $200,300 
33%           $164,551 - $357,700       $200,301 - $357,700 
35%           Over $357,701             Over $357,701

Tax Bracket Example on 2018’s Tax Rates

Let’s look at another tax bracket example based on 2018’s tax rates. There are three different people that earn different incomes. The first person earns annual taxable income of $50,000 dollars. The second earns annual taxable income of $100,000 dollars. The third person earns annual taxable income of $250,000 dollars. By using the US Tax Brackets 2018 chart below, the first person is in the 22% tax bracket; the second person in the 24% tax bracket; the third person in the 35% tax bracket.

The first individual makes $50,000. Using the 22% bracket, this individual owes $11,000.

The second individual makes $100,000. Using the 24% bracket, this individual owes $24,000.

The third individual makes $250,000. Using the 35% bracket, this individual owes $87,500.

US Tax Brackets 2018

Tax Rate      Single                    Married Filing Jointly 
10%           $0 - $9,524               $0 - $19,049 
12%           $9,525 - $38,699          $19,050 - $77,399 
22%           $38,700 - $82,499         $77,400 - $164,999 
24%           $82,500 - $157,499        $165,000 - $314,999 
32%           $157,500 - $199,999       $315,000 - $399,999 
35%           $200,000 - $499,999       $400,000 - $599,999
37%           $500,000 +                $600,000 +

IRS Tax Bracket Information

For IRS tax bracket information, IRS tax bracket tables, and IRS tax brackets for 2018, go to the following website: irs.gov.

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tax brackets

Originally posted by Jim Wilkinson on July 24, 2013. 

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