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What Does The Term "Tax Bracket" Mean?

Posted by: Jaime Faulkner on Monday, April 11, 2011 at 8:34:00 pm

The income tax laws are complex and constantly changing.  Yet, there is one theme that is constant and its understanding may help you identify ways to reduce your tax bill.

The U. S. tax laws are built around a progressive, marginal rate structure.  Simply speaking, this means the higher your income, the higher the rate of tax you pay on your incremental income.

Think of our tax system like stair steps.  Each step represents a “bracket” of income that is taxed at a certain rate.  The higher you go, the higher the tax rate on the income in that bracket.  “Segments” of income at lower levels are taxed at lower rates and “segments” of income at higher levels are taxed at higher rates.

 Here are the “brackets” and rates for 2011 tax returns.

 Income Tax Rate Schedules for 2011

2011 Single Return Rate Schedule

 

2011  Married Filing Jointly Rate Schedule

Taxable income levels

Tax rate

 

Taxable income levels

Tax rate

0 to $8,500

10%

 

0 to $17,000

10%

$8,501 to $34,500

15%

 

$17,001 to $69,000

15%

$34,501 to $83,600

25%

 

$69,001 to $139,350

25%

$83,601 to $174,400

28%

 

$139,351 to $212,300

28%

$174,401 to $379,150

33%

 

$212,301 to $379,150

33%

Over $379,150

35%

 

Over $379,1500

35%

There is a great deal more to our income tax laws like the definition of taxable income, deductions, alternative minimum tax and lots more.  Discussing your tax situation with your tax advisor may help you identify ways to take advantage of this marginal rate system and keep your taxes as low as possible.

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