'Tax Rates' is explained in detail and with examples in the Laws & Regulations edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
Tax Rates refer to the percentage of their income that corporations or individuals will have to pay in taxes to their governing authority or authorities. In the United States, this proves to be the percentage rate that both the federal government and many state governments assess against the taxable income of an individual or the earnings of a corporation. In the U.S., the system utilized is a progressive tax system. This simply means that as the amount of taxable income rises, so will the percentage rate at which taxes are levied on the income or earnings.
Another way of looking at the Tax Rate is that it is the percentage rate that a company or individuals owe form their respective earnings or income. They must pay this to at least the central authority (federal government in the United States), sometimes the state government (or provincial government), and occasionally the municipal governments as well (counties or cities). This makes the tax burden extremely high on these residents and companies. It explains why as much as more than half of earnings or income can be easily taxed in the United States today.
Another feature of these tax rates in progressive systems like the U.S. is that the tax rates are further grouped into tax brackets. There are seven of these brackets. In each of the brackets, the dollar threshold depends on the filer status. These could be single, head of household, married filing jointly, or married filing separately. The two most common statuses for tax filing are single and married filing jointly.
The seven tax brackets include 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent, and 39.6 percent. Every tax payer falls into one of these categories in the U.S. As the individuals’ incomes rise, so too does their tax bracket. This means that those who make the most money should in theory pay the most taxes. Yet the way it works is that on the particular income above each threshold, they pay that specific tax rate.
As an example, consider the year 2016. Those individuals who were single filers and earned $450,000 would pay the largest bracket rate of 39.6 percent on only their income in excess of $415,050. On each lower bracket amount, they would be levied the appropriate tax rates on the money earned in that bracket.
For their first $9,275 in income, they would pay 10 percent on this. On the next income up to $37,650, they would be assessed 15 percent. The money from that point up to $91,900 would be levied at 25 percent. The next amount of money up to $190,150 would be assessed taxes at the rate of 28 percent. Money earned up to $413,350 taxes at 33 percent. To $415,050 pays at 35 percent. The remaining money up to the total income of $450,000 would be taxed at 39.6 percent, the top income tax bracket.
If the people were married filing jointly, the bracket threshold amounts would be higher in the example above. For their first $18,650 in income, they would pay 10 percent on this. On the next income up to $75,900, they would be assessed 15 percent. The money from that point up to $151,900 would be levied at 25 percent. The next amount of money up to $231,450 would be assessed taxes at the rate of 28 percent. Money earned up to $413,350 taxes at 33 percent. The remaining money up to the total income of $450,000 would be taxed at 35 percent. If they had earnings above the $466,951 threshold maximum tax bracket income level, this would be assessed at the the top income tax bracket of 39.6 percent.
If this sounds like a complicated and confusing mess, that is because it is. It explains why the United States requires over a million employees at the Internal Revenue Service alone to keep up with the most complicated tax systems in the history of the world.