Tax Bracket


DEFINITION of 'Tax Bracket'

The rate at which an individual is taxed. Tax brackets are set based on income levels; individuals with lower income levels are taxed at a lower rate than individuals with higher income levels. Tax brackets serve as cutoff points for given income tax rates; therefore, if an individual's annual taxable income exceeds the cutoff point, that person is taxed according to the next tax bracket.


Most countries tax individual incomes using a system of tax brackets. This structure implements what is referred to as a progressive tax system, in which taxation progressively increases as an individual's income grows. This contrasts with a flat tax structure, in which all individuals are taxed at the same rate, regardless of their income levels.

Proponents of the use of tax brackets and a progressive tax system contend that individuals with high incomes are more able to pay income taxes while maintaining a high standard of living, while low-income individuals struggle to meet their basic needs, and should be subject to less taxation.

Furthermore, the use of tax brackets has an automatic stabilizing effect on an individuals' after-tax income, as a decrease in salary is counteracted by a decrease in tax rate, leaving the individual with a less substantial decrease in after-tax income.

To learn more about tax brackets, read What's the difference between a tax rate and a tax bracket?

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  1. Do tax brackets include Social Security?

    A portion of your Social Security benefits may be subject to federal taxation using tax brackets. Your tax bracket is determined ... Read Full Answer >>
  2. Are tax brackets adjusted for inflation?

    Each year, the U.S. Internal Revenue Service (IRS) adjusts tax brackets for changes in the cost of living to calculate federal ... Read Full Answer >>
  3. How is income taxed on prorated salary?

    Since yearly income is viewed by the Internal Revenue Service (IRS) as the total amount of income a person has made over ... Read Full Answer >>
  4. Which states are the most expensive for high-income earners?

    The most expensive states for high-income earners are California, Hawaii and New York. The tax rates assessed by these states ... Read Full Answer >>
  5. How can I find out which income tax bracket I am in?

    U.S. federal tax brackets are based on filing status (single, married filing jointly, married filing separately or head of ... Read Full Answer >>
  6. What is the difference between income tax and capital gains tax?

    The conceptual difference between income tax and capital gains tax is that income tax is the tax paid on income earned from ... Read Full Answer >>
  7. Are progressive taxes ever more unfair that flat taxes?

    Progressive taxes assign a different tax rate to different taxpayers. Affluent taxpayers pay the highest income tax rates ... Read Full Answer >>
  8. Can you calculate the marginal tax rate in Excel?

    Marginal tax rates are higher for higher-income individuals. Accurate information about current tax brackets is needed to ... Read Full Answer >>
  9. How do I find out what my tax bracket is?

    Understanding which tax bracket to use when preparing one’s taxes requires knowing how much was earned during the year, as ... Read Full Answer >>
  10. What's the difference between a tax rate and a tax bracket?

    Tax brackets refer to the table created when matching filing statuses with their corresponding tax rates. There are three ... Read Full Answer >>
  11. 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 >>

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