|
Tips
Shop
|
|
Tax Brackets Explained
What exactly are tax brackets and how do they affect the amount of money that you pay each year in taxes? Regardless of whether you pay both federal and state income taxes or just federal taxes, it is important to understand how tax brackets affect you and your income taxes.
Tax brackets determine the rate at which your income is taxed. Tax brackets are determined by income levels. For example, if you earn a lower income then you would fall into one of the lower income tax brackets. This means that you would pay a lower income tax rate than someone who makes more money. Tax brackets are also a cutoff point. If your income level exceeds a tax bracket then you are automatically bumped up to the next immediate tax bracket.
Most countries in the world today use a system that features tax brackets as well as a progressive tax system. This means that individuals that make more money pay more in taxes and are taxed according to higher tax brackets. This is in direct contrast to a tax system that is flat and by which everyone is taxed at the same rate, irregardless of what their income level might be.
Those in favor of a progressive tax system and tax brackets contend that persons who have higher income are better able to pay higher income taxes while maintaining an acceptable standard of living. Conversely, those individuals with lower income levels are less able to pay larger income taxes while still maintaining the ability to meet basic needs.
In the United States, information regarding tax brackets is published by the IRS and can be easily found online. In order to determine which tax bracket you fall into it is necessary to determine whether you are filing single or jointly and then find where your income falls between two different levels. Currently, there are six federal income tax brackets. There are typically six tax brackets for state income taxes as well.
At the current time the lowest income tax bracket is 10% and the highest is 35%. The exact amount of income that must be earned in order to fall within a specific tax bracket depends upon whether an individual is filing as single or jointly. In 1993, two higher levels of tax brackets were added, which took the highest brackets up to almost 40%. In 2003, the brackets were lowered once again.
|
|
