Depending on your income range, you will be taxed according to one of the tax brackets that exist today in the income tax system. Does it pay to work hard and get ahead, or will Uncle Sam just take anything extra that you earn? Take our quiz and find out whether ambition pays in light of today's tax reality.
If you fall into the lowest tax bracket, you pay a certain rate in taxes; if you fall into a higher tax bracket, you pay a higher rate in taxes. If your income changes, you may move into a different tax bracket, depending on where you fall in the range.
The United States tax system is one in which taxes increase progressively as income increases. It is considered fairer for those with higher incomes to assume a larger portion of the income tax burden than those with lower incomes.
In the case of a flat tax system, every taxpayer would pay at the same rate, regardless of income. For example, if the flat tax rate was 10%, whether you earn $5,000 a year or $50,000, you would pay 10% of your salary to the IRS.
There are four possible filing statuses for the purposes of paying United Stated federal income tax: single, head of household, married filing jointly or qualifying widow(er), and married filing separately. Though singles can also be heads of household: If you live alone without dependents, you are categorized as single.
In 2008, there were six brackets for each filing status. IRS Schedule X lists the six tax brackets for individuals filing as singles and Schedule Y-1 lists the six tax brackets for those married couples filing jointly .
You actually pay a tax rate that taxes different portions of your income as it progresses through the tax brackets. To find your effective tax rate, or your overall tax rate, divide your total tax by your taxable income.
The earliest United States income tax was established by the Revenue Act of 1861 to help fund the Civil War. It was repealed in 1872.
The 16th Amendment to the Constitution was passed in 1913, giving the federal government the power to levy taxes.
In an attempt to raise money for government projects during the Great Depression, the federal government instituted a system that included 55 tax brackets in increments of 1 percent, with a high tax rate of 79 percent.
In an attempt to stimulate economic growth, the Economic Recovery Tax Cut of 1981 lowered tax rates. The highest rate was slashed from 70 percent to 50 percent.