Tax bracket

A tax bracket is a predetermined range of income to which a specific tax rate applies. Tax brackets are usually designed to charge a higher tax rate to higher-income individuals. As a result, a person's income is divided into tranches; the income within each tranche is taxed at the rate that applies to that specific tax bracket. This means that the tax rate charged on the last dollar earned may be substantially higher than the tax rate charged on the first dollar earned.

When the total tax charged is divided by a person's total income, this results in an effective tax rate that represents the average tax rate for that person.

Related Courses

Accounting for Income Taxes