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What is a Tax Rate?

tax rates

What Is a Tax Rate?

A tax rate is the percentage at which an individual or corporation is taxed. The United States (both the federal government and many of the states) uses a progressive tax rate system, in which the percentage of tax charged increases as the amount of the person’s or entity’s taxable income increases. A progressive tax rate results in a higher dollar amount collected from taxpayers with greater incomes. A tax rate is the percentage at which an individual or corporation is taxed.

Understanding Tax Rates

To help build and maintain the infrastructures used in a country, the government usually taxes its residents. The tax collected is used for the betterment of the nation, of society, and of all living in it. In the U.S. and many other countries around the world, a tax rate is applied to some form of money received by a taxpayer. The money could be income earned from wages or salary, investment income (dividends, interest), capital gains from investments, profits made from goods or services rendered, etc. The percentage of the taxpayer’s earnings or money is taken and remitted to the government.

When it comes to income tax, the tax rate is the percentage of an individual’s taxable income or a corporation’s earnings that is owed to state, federal and, in some cases, municipal governments. In certain municipalities, city or regional income taxes are also imposed.The tax rate that is applied to an individual’s earnings depends on the marginal tax bracket that the individual falls under. The marginal tax rate is the percentage taken from the next dollar of taxable income above a pre-defined income limit.

 

What are tax rates for 2020?

For tax year 2019, the top rate is 37 percent for individual single taxpayers with incomes greater than $510,300 ($612,350 for married couples filing jointly). The other rates are:

  • 35 percent, for incomes over $204,100 ($408,200 for married couples filing jointly);
  • 32 percent for incomes over $160,725 ($321,450 for married couples filing jointly);
  • 24 percent for incomes over $84,200 ($168,400 for married couples filing jointly);
  • 22 percent for incomes over $39,475 ($78,950for married couples filing jointly);
  • 12 percent for incomes over $9,700 ($19,400 for married couples filing jointly).

The lowest rate is 10 percent for incomes of single individuals with incomes of $9,700 or less ($19,400 for married couples filing jointly).