Tax Rate Definition

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Tax Rate Definition
Tax Brackets, 2022
2022 RateMarried Joint ReturnSingle IndividualHead of HouseholdMarried Separate Return
10%$20,550 or less$10,275 or less$14,650 or less$10,275 or less
12%$20,551 to $83,550$10,276 to $41,775$14,651 to $55,900$10,276 to $41,775
22%$83,551 to $178,150$41,776 to $89,075$55,901 to $89,050$41,776 to $89,075
24%$178,151 to $340,100$89,076 to $170,050$89,051 to $170,050$89,076 to $170,050
32%$340,101 to $431,900$170,051 to $215,950$170,051 to $215,950$170,051 to $219,950
35%$431,901 to $647,850$215,951 to $539,900$215,951 to $539,900$215,951 to $323,925
37%Over $647,850Over $539,900Over $539,900Over $323,925

A single person earning $62,000 in 2022 will be taxed as follows: 10% on the first $10,275; 12% on the following $31,501 (amounts above $10,275 up to $41,775); and 22% on the remaining $20,224 (amounts over $41,775 up to $89,075), for a total of $9,256.90.

Another person earning $160,000 will be taxed 10% on the first $10,275, 12% on the following $31,501, 22% on the next $47,300 (the amount above $41,775 up to $89,075), and 24% on the last $70,924 (the amount of income falling between $89,075 and $170,050), for a total of $32,235.38.

Following this logic, a single taxpayer in the third marginal tax bracket will pay less tax than a single filer in the fourth and higher brackets.

A marginal tax rate is the percentage of income that is taxed at increasingly higher rates.

Despite being in the third and fourth marginal tax brackets, these taxpayers do not pay flat rates of 22% and 24% on all of their income owing to the structure of the marginal tax computation. If they did, the first person would pay 22% x $62,000 = $13,640, while the second would pay 24% × $160,000 = $38,400. Person A pays an effective rate of 14.9% ($9,256.90 $62,000) while the higher-income individual pays a rate of 20% ($32,235,38 $160,000). These are known as effective tax rates, and they indicate the actual proportion at which the tax is imposed within a fiscal year.

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Sales and Capital Gains Tax Rates

Tax rates are not limited to earned income and business profits. Tax rates may also apply when taxes are levied on other occasions, such as sales tax on products and services, real property tax, short-term capital gains tax, and long-term capital gains tax. When a customer buys certain products and services from a store, a sales tax is added to the purchase price at the moment of sale. The sales tax rate varies from state to state since it is administered by separate state governments. As of 2021, the state sales tax rate in Georgia is 4%, whereas the tax rate in California is 6%.

Because extra income from assets is classified as earnings, the government levies taxes on capital gains and dividends as well. When the value of an investment grows and the security is sold for a profit, the investor’s tax rate is determined by how long he or she owned the asset. The capital gain on a short-term investment (one held for one year or less) is taxed at the same rate as the investor’s regular income tax. As a result, a person in the 24% marginal tax rate will pay 24% on short-term capital gains.

Profits from investments held for more than a year are taxed at a rate ranging from 0% to 20%. Individuals with taxable income less than $41,675 pay no taxes starting in 2022. Individuals with taxable income between $41,675 and $459,750 pay a 15% capital gains tax rate, while investors with income beyond $459,750 pay a 20% capital gains tax rate. Qualified dividends are taxed at the same rate schedule as long-term capital gains. Non-qualified dividends are subject to the same taxation as short-term capital gains.

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Tax Rates Abroad

Tax rates differ from one nation to the next. Some nations utilize progressive taxation, while others use regressive or proportional taxation. A regressive tax schedule raises the tax rate as the taxable amount lowers.

The flat or proportionate tax rate system applies the same tax rates to all taxable amounts, regardless of income level. Bolivia and Greenland are two examples of nations that use this taxation system.

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