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%).

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. Income Tax

    A tax that governments impose on financial income generated by ...
  4. Tax Base

    The assessed value of a set of assets, investments or income ...
  5. Progressive Tax

    A tax that takes a larger percentage from the income of high-income ...
  6. Federal Tax Brackets

    Income tax groupings specified by the Internal Revenue Service ...
Related Articles
  1. Personal Finance

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
  2. Personal Finance

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
  3. Personal Finance

    How Getting A Raise Affects Your Taxes

    Many people think they may actually make less overall because they are paying more taxes.
  4. Personal Finance

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  5. Financial Advisor

    Federal Tax Brackets

    Why do we have income tax brackets? What do they do for us? Read this to understand the basics and where to find your own bracket.
  6. Personal Finance

    Breaking Down Taxes For Different Income Brackets

    Here is a useful rundown of how much you will pay in taxes based on your income.
  7. Personal Finance

    Why America's Taxes Are Too Low

    The solution to America's economic woes may not be in lowering taxes further, but may, in fact, lie in increasing them.
  8. Personal Finance

    The History Of Taxes In The U.S.

    The number of taxes that we now consider a given did not always exist. Find out how they arose.
  9. Personal Finance

    Why Your Tax Bracket Is Not the Tax Rate You Pay

    Understanding how federal and state tax brackets work is important for tax planning – and for making sense of the political conversation around tax reform.
  10. Managing Wealth

    3 Ways To Avoid The Dividend Tax Hike

    Find out how you can offset the potential tax hikes.
RELATED FAQS
  1. What is the difference between income tax and capital gains tax?

  2. 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 Answer >>
  3. Is the marginal tax rate a progressive tax?

    Learn how the marginal tax rate is a progressive tax that takes a higher percentage of income tax from high-income earners ... Read Answer >>
  4. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
  5. How are effective tax rates calculated from income statements?

    Learn how to read an income statement and how to find the information necessary to calculate a company's effective income ... Read Answer >>
  6. How can I lower my effective tax rate without lowering my income?

    Discover how to reduce your effective tax rate without losing income by maximizing adjustments and deductions, earning tax-free ... Read Answer >>
Trading Center