What Is the Purpose of IRS Income Tax Brackets?


Quick Answer

Under the United States' progressive tax system, individuals with greater income pay tax at higher rates, explains Investopedia. Different tax rates exist for each portion of a taxpayer's income, says efile.com. When an individual's income hits a higher tax bracket, the corresponding tax rate applies only to each additional dollar of income, up to the next tax bracket's threshold; individuals do not pay the same tax rate on the entirety of their incomes.

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The relevant tax brackets vary between taxpayers based on their status as single, married filing jointly or separately, or head of household, notes efile.com. For example, single taxpayers pay tax at 10 percent on their first $9,225 of income, while heads of household pay 10 percent on their first $13,150, as of 2015. However, the same range of tax rates apply across all statuses, with a high of 39.6 percent. The maximum rate applies on income above a threshold that ranges from $232,425 to $464,850 depending on filing status. Because marginal tax rates do not represent the actual rate at which an individual pays tax on the entirety of his income, a taxpayer can determine his effective tax rate by dividing his tax liability by his total income.

The IRS updates tax brackets each year to reflect inflation based on the Consumer Price Index, according to the Tax Foundation. Certain types of income are also taxed at special rates, different from those determined by income brackets, explains Wisebread. For example, the IRS generally taxes capital gains on long-term investments at more favorable rates. Critics of tax bracket-based progressive tax regimens argue that such systems discourage hard work and that a flat tax system, which charges the same tax rate on all levels of income, is more fair, says Investopedia.

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