Dual Rate Income Tax

DEFINITION of 'Dual Rate Income Tax'

An income tax rate structure in which two different tax rates are charged depending on income levels. All income will be taxed at the lower rate up to the cutoff income tax point and all income above the cutoff point is taxed at the higher rate. This is similar to a flat tax structure but instead of just one rate, it has two.

BREAKING DOWN 'Dual Rate Income Tax'

This tax structure is often considered to simplify the overall structure of the tax system by eliminating most tax deductions and loopholes. For example, an income tax system using a dual rate structure may charge 20% on all income up to $100,000 and charge 25% on every dollar of taxable income above $100,000. Therefore, if you had an income of $150,000, your tax owed would be $32,500 ($100,000 x 20% + $50,000 x 25%).