tax
Tax Bracket
A tax bracket is a range of income taxed at a specific rate in a progressive tax system. Each bracket rate applies only to the income within that range, not to your entire income.
The US federal income tax has seven brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%). The UK has three main bands (20%, 40%, 45%). Canada has five federal brackets. Australia has four plus the Medicare levy.
A common misconception is that earning a raise can push you into a higher bracket and leave you with less take-home pay. This cannot happen — the higher rate only applies to the income above the bracket threshold, not below it.
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- Marginal Tax Rate
- Your marginal tax rate is the rate you pay on the last dollar of income earned — the rate of the highest tax bracket you fall into. It is not the rate applied to your entire income.
- Effective Tax Rate
- Your effective tax rate is your total tax paid divided by your total income, expressed as a percentage. It is always lower than your marginal rate in a progressive tax system.
- Standard Deduction
- The standard deduction is a fixed amount the IRS lets US taxpayers subtract from gross income before calculating tax, without itemising individual deductions. For 2025: $15,000 (single) or $30,000 (married filing jointly).
Frequently asked questions
What is Tax Bracket?
A tax bracket is a range of income taxed at a specific rate in a progressive tax system. Each bracket rate applies only to the income within that range, not to your entire income.