Definition
A tax bracket is a range of income taxed at a particular rate.
How It Works
The federal system has several brackets, each covering a band of income taxed at a set rate. As income rises into a higher bracket, only the income within that band is taxed at the higher rate. Brackets adjust each year for inflation and vary by filing status.
Example
Moving into a higher bracket does not raise the tax on income already taxed at lower rates, a common misconception.
Who It Applies To
Every taxpayer.
Watch-Outs
Brackets change annually, so planning should use current-year figures.
