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Categories: General Tax Terms

Tax Bracket: A tax bracket refers to a range of income levels that are subject to a specific tax rate in a progressive tax system. Tax brackets are used to determine how much income tax an individual or business must pay based on their taxable income.

In a progressive tax system, as a taxpayer’s income increases, they are taxed at higher rates for the income that falls within higher brackets. For example, if a tax system has three brackets: 10% for income up to $10,000, 15% for income from $10,001 to $40,000, and 20% for income over $40,000, a taxpayer earning $50,000 would pay 10% on the first $10,000, 15% on the next $30,000, and 20% on the remaining $10,000.

Understanding tax brackets helps taxpayers estimate their tax obligations and make informed financial decisions.

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