Tax Bracket

Definition

The term tax bracket is used to describe the incremental federal income taxes paid on each additional dollar of earnings. Currently there are six marginal tax brackets that are determined through a combination of filing status and income level.

Explanation

The tax brackets in the United States are modeled after a progressive tax system.  As the income level of a household or individual rises, so does the marginal tax rate.  For example, an individual filing under the Single tax status with taxable income of $25,000 per year is in the 15% tax bracket (2016).  If that individual were to have taxable income in excess of $100,000, then they would be in the 28% tax bracket.

Taxable income is calculated as the sum of all wages and other sources of income, such as interest income, less deductions and exemptions.

Tax brackets are considered both progressive (they increase as taxable income increases) and marginal.  As taxable income increases, each additional dollar of income is taxed at progressively higher rates.  For example, individuals in the 28% tax bracket owe $0.28 in federal income taxes for each additional dollar of earnings.

There are a total of 28 different combinations of tax brackets and filing status, which are detailed in our up-to-date publication Tax Brackets.

Related Terms

income taxes, accrued payroll taxes, deferred income taxes, tax shelteramended tax return, Form 1040