Tax bracket
From FinancialPlanning
Your tax bracket, or marginal tax bracket, is the percentage of tax paid on your "next dollar" of ordinary income.
For example, the 2006 tax rates for single individuals, and the income ranges that they apply to, are as follows:
| Range of Taxable Income | Marginal Tax Rate |
|---|---|
| $0 to $7,550 | 10% |
| $7,551 to $30,650 | 15% |
| $30,651 to $74,200 | 25% |
| $74,201 to $154,800 | 28% |
| $154,801 to $336,550 | 33% |
| $336,551 and above | 35% |
Someone with $70,000 in taxable income is in the 25% tax bracket, and someone making $400,000 is in the 35% tax bracket, for federal taxes. Each state also has its own tax brackets.
A common misnomer is that reaching a higher bracket subjects all of your income to the new rate. This isn't true; only income falling into that next bracket is taxed at the higher rate.
Another misconception is that your gross salary determines your tax bracket. You start with that, but subtract out things like 401(k) contributions and health insurance, then take out your exemptions and deductions, to arrive at your taxable income.
