DEFINITION of 'Federal Tax Brackets'

Income tax groupings specified by the Internal Revenue Service (IRS) that determine at what rate an individual, trust, or corporation's annual income will be subject to federal income tax. Federal tax brackets are adjusted periodically to account for the effects of inflation over time.

BREAKING DOWN 'Federal Tax Brackets'

Federal tax brackets are structured so that individuals or legal entities are taxed at different rates depending upon the amount of annual income they earn.

For individuals, the federal tax brackets are structured so that as an individual earns more annual income, his or her earnings are taxed at a higher rate.

Corporate federal tax brackets roughly provide for increasing tax rates as businesses earn more income, but there are usually some deviations from that general rule. For example, 2006 corporate income from $100,000 and $355,000 was taxed at a rate of 39%, while corporate income from $335,000 to $10 million was taxed at 34%.

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