A:

Tax brackets refer to the table created when matching filing statuses with their corresponding tax rates. There are three components of a tax bracket: filing status, tax rate, and income range. Tax rates are shown on the Y-axis and filing statuses are shown on the X-axis. The amount of income taxed at a specific rate for a specific income amount is found in the body of the tax bracket. Each of the seven tax rates apply to a specific level of income rather than applying to all of a taxpayer’s taxable income. Taxpayers use a tax bracket to determine what their tax rates are.

The Internal Revenue Service (IRS) uses a progressive tax system, meaning that the more a taxpayer earns the more tax will be owed. Taxpayers pick which filing status is most appropriate to their situation, and calculate how much income is taxable after accounting for deductions and exemptions. There are five filing statuses: single, married filing separately, married filing jointly, head of household, and qualifying widow/widower with dependent child. There are also six marginal income tax brackets, each assigned a different tax rate.

2014 Tax Brackets

Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household
10% Up to $9,075 Up to $18,150 Up to $9,075 Up to $12,950
15% $9,076 to $36,900 $18,151 to $73,800 $9,076 to $36,900 $12,951 to $49,400
25% $36,901 to $89,350 $73,801 to $148,850 $36,901 to $74,425 $49,401 to $127,550
28% $89,351 to $186,350 $148,851 to $226,850 $74,426 to $113,425 $127,551 to $206,600
33% $186,351 to $405,100 $226,851 to $405,100 $113,426 to $202,550 $206,601 to $405,100
35% $405,101 to $406,750 $405,101 to $457,600 $202,551 to $228,800 $405,101 to $432,200
39.6% $406,751 or more $457,601 or more $228,801 or more $432,201 or more

For example, a taxpayer who earns $50,000 and files as single does not pay a tax rate of 25% on all taxable income, but only income between $36,901 and $50,000. He or she will pay a tax rate of 10% on the first $9,076 of income, and 15% on income between $9,076 and $36,901.

RELATED FAQS
  1. What's the difference between the marginal tax rate system and a flat tax?

    In modern economics, there are two main types of tax systems: marginal tax rate and flat tax rate. Under a marginal system, ... Read Full Answer >>
  2. Can moving to a higher tax bracket cause me to have a lower net income?

    Many people think that when their income increases by just enough to push them into a higher tax bracket, their overall take-home ... Read Full Answer >>
  3. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Full Answer >>
  4. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  5. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    With a few exceptions, early withdrawals from traditional or Roth IRAs generally incur a tax penalty equal to 10% of the ... Read Full Answer >>
  6. Are credit card rewards taxable?

    Credit card rewards are taxable in the United States some of the time. The Internal Revenue Service (IRS) classifies credit ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Do U.S. High Corporate Tax Rates Hurt Americans?

    The United States has the highest corporate tax rate of the 34 developed, free-market nations that make up the Organization for Economic Cooperation and Development (OECD).
  2. Taxes

    How Your Tax Rate Is Determined

    Feel like the government always has its hand in your pocket? Learn the theory behind how it decides how much to take.
  3. Economics

    The Top 9 Things to Know About Hillary Clinton's Economic View

    Find out where former secretary of state and Democratic presidential candidate Hillary Clinton stands on the economy, jobs, trade and education.
  4. Professionals

    Holding Out for Capital Gains Could Be a Mistake

    Holding stocks for the sole purpose of avoiding short-term capital gains taxes may be a mistake, especially if all the signs say get out.
  5. Retirement

    How do you calculate penalties on a 401(k) early withdrawal?

    Find out how to calculate the penalties on early withdrawals from your 401(k), including the impact of the additional 10% tax penalty, vesting and income tax.
  6. Savings

    A Look at the Cost and Tax Treatment of College

    Is there more we can do to improve the affordability of post-secondary education? We take a look at how students and colleges are taxed today.
  7. Taxes

    What's Wrong with the American Tax System

    American's are highly taxed and we still run a deficit. We explain why.
  8. Professionals

    Advisors: Warn Clients About These Audit Triggers

    There are several factors that may increase the risk of an audit, especially with high-net-worth clients.
  9. Professionals

    3 States Where Taxes Can Hammer Retirees

    Knowing which states ding retirees with the highest tax implications should be part of your retirement research.
  10. Professionals

    Best Ways to Avoid RMD Tax Hits on IRAs

    If you want to avoid hefty tax penalties, read this cheat sheet on IRA required minimum distributions.
RELATED TERMS
  1. Tax Bracket

    The rate at which an individual is taxed. Tax brackets are set ...
  2. Tax Rate

    The percentage at which an individual or corporation is taxed. ...
  3. Section 1231 Property

    A tax term relating to depreciable business property that has ...
  4. Duty Free

    Goods that international travelers can purchase without paying ...
  5. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  6. Guideline Premium And Corridor Test (GPT)

    A test used to determine whether an insurance product can be ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!