Tax bracket
Tax brackets are the divisions at which tax rates change in a progressive tax system (or an explicitly regressive tax system, though that is rarer). Essentially, tax brackets are the cutoff values for taxable income—income past a certain point is taxed at a higher rate.
Example
Imagine that there are three tax brackets: 10%, 20%, and 30%. The 10% rate applies to income from $1 to $10,000; the 20% rate applies to income from $10,001 to $20,000; and the 30% rate applies to all income above $20,000.
Under this system, someone earning $10,000 is taxed at 10%, paying a total of $1,000. Someone earning $5,000 pays $500, and so on.
Meanwhile, someone who earns $25,000 faces a more complicated calculation. The rate on the first $10,000 is 10%, from $10,001 to $20,000 is 20%, and above that is 30%. Thus, they pay $1,000 for the first $10,000 of income (10%), $2,000 for the second $10,000 of income (20%), and $1,500 for the last $5,000 of income (30%), In total, they pay $4,500, or an 18% average tax rate.
In practice the computation is simplified by using point–slope form or slope–intercept form of the linear equation for the tax on a specific bracket, either as tax on the bottom amount of the bracket plus the tax on the marginal amount within the bracket:
or the tax on the entire amount (at the marginal rate), minus the amount that this overstates tax on the bottom end of the bracket.
See Progressive tax#Computation for details.
Tax brackets in Australia
Individual income tax rates (residents)
Financial years 2018–19, 2019–20[1]
| Taxable income | Tax on this income | Effective tax rate |
|---|---|---|
| 0 – $18,200 | Nil | 0% |
| $18,201 – $37,000 | 19c for each $1 over $18,200 | 0 – 9.7% |
| $37,001 – $90,000 | $3,572 plus 32.5c for each $1 over $37,000 | 9.7 – 21.9% |
| $90,001 – $180,000 | $20,797 plus 37c for each $1 over $90,000 | 21.9 – 30.3% |
| $180,001 and over | $54,097 plus 45c for each $1 over $180,000 | 30.3 – less than 45% |
The above rates do not include the Medicare levy of 2.0%.
Tax brackets in Canada
Canada's federal government has the following tax brackets for the 2012 tax year (all in Canadian dollars). Note that the "basic personal amount" of $15,527 effectively means that income up to this amount is not subject to tax, although it is included in the calculation of taxable income.[2]
| Taxable income | Tax on this income |
|---|---|
| $0–$15,527 | Nil |
| $15,528–$42,707 | 15% |
| $42,708–$85,414 | 22% |
| $85,414–$132,406 | 26% |
| Over $132,406 | 29%[3] |
Each province except Québec adds their own tax on top of the federal tax. Québec has a completely separate income tax.
Provincial / Territorial Tax Rates for 2012:[4]
Tax brackets in India
Income tax slabs applicable for financial year 2015–16 (Assessment Year- 2016–17)is summarized below:
| Men and Women under 60 years | |
|---|---|
| Up to ₹ 250,000 | Nothing |
| ₹ 250,001 to ₹ 500,000 | 5% of the amount exceeding ₹ 2,50,000 (2.5 lacs) |
| ₹ 500,001 to ₹ 1,000,000 | ₹ 12,500 + 20% of the amount exceeding ₹ 500,000 (5 Lacs ) |
| More than ₹ 1,000,000 | ₹ 1,12,500 + 30% of the amount exceeding ₹ 1,000,000 (10 lacs) |
| Men and Women between 60 and 80 years | |
|---|---|
| Up to ₹ 300,000 | Nothing |
| ₹ 300,001 to ₹ 500,000 | 5% of the amount exceeding ₹ 300,000 (3 lacs) |
| ₹ 500,001 to ₹ 1,000,000 e | ₹ 15,000 + 20% of the amount exceeding ₹ 500,000 (5 lacs) |
| More than ₹ 1,000,000 | ₹ 115,000 + 30% of the amount exceeding ₹ 1,000,000 (10 lacs) |
| Very Senior Citizens above 80 years | |
|---|---|
| Up to ₹ 500,000 | Nothing |
| ₹ 500,001 to ₹ 1,000,000 | 20% of the amount exceeding ₹ 5 lacs |
| More than ₹ 1,000,000 | ₹ 100,000 + 30% of the amount exceeding ₹ 10 lacs |
Tax brackets in Malaysia
Malaysia has the following income tax brackets based on assessment year.[6]
Assessment Year 2020
| Taxable income | Tax payable on this income | Effective tax rate |
|---|---|---|
| MYR 0 – 5,000 | Nil | 0% |
| MYR 5,001 – 20,000 | 1% for each MYR 1 over MYR 5,000 | 0 – 0.75% |
| MYR 20,001 – 35,000 | MYR 150 + 3% for each MYR 1 over MYR 20,000 |
0.75 – 1.71% |
| MYR 35,001 – 50,000 | MYR 600 + 8% for each MYR 1 over MYR 35,000 |
1.71 – 3.60% |
| MYR 50,001 – 70,000 | MYR 1,800 + 14% for each MYR 1 over MYR 50,000 |
3.60 – 6.57% |
| MYR 70,001 – 100,000 | MYR 4,600 + 21% for each MYR 1 over MYR 70,000 |
6.57 – 10.90% |
| MYR 100,001 – 250,000 | MYR 10,900 + 24% for each MYR 1 over MYR 100,000 |
10.90 – 18.76% |
| MYR 250,001 – 400,000 | MYR 46,900 + 24.5% for each MYR 1 over MYR 250,000 |
18.76 – 20.91% |
| MYR 400,001 – 600,000 | MYR 83,650 + 25% for each MYR 1 over MYR 400,000 |
20.91 – 22.28% |
| MYR 600,001 – 1,000,000 | MYR 133,650 + 26% for each MYR 1 over MYR 600,000 |
22.27 – 23.77% |
| MYR 1,000,001 – 2,000,000 | MYR 237,650 + 28% for each MYR 1 over MYR 1,000,000 |
23.76 – 25.88% |
| MYR 2,000,001 and over | MYR 517,650 + 30% for each MYR 1 over MYR 2,000,000 |
25.88% – 30.00% |
Tax brackets in Malta
Malta has the following tax brackets for income received during 2012
Single Rates:
| Taxable income | Tax on this income |
|---|---|
| €0 – 8,500 | Nil |
| €8,501 – 14,500 | 15% |
| €14,501 – 19,500 | 25% |
| €19,501 and over | 35% |
Married Rates:
| Taxable income | Tax on this income |
|---|---|
| €0 – 11,900 | Nil |
| €11,901 – 21,200 | 15% |
| €21,201 – 28,700 | 25% |
| €28,701 and over | 35% |
Tax brackets in the Netherlands
Tax brackets in New Zealand
New Zealand has the following income tax brackets (as of 1 October 2010). All values in New Zealand dollars, with the ACC Earners' levy not included.[7]
| Taxable income | Tax on this income |
|---|---|
| $0 – $14,000 | 10.5% |
| $14,001 – $48,000 | 17.5% |
| $48,001 – $70,000 | 30% |
| $70,001 and over | 33% |
45% when the employee does not complete a declaration form (IR330).
ACC Earners' Levy for the 2010 tax year is 2.0%, an increase from 1.7% in the 2008 tax year.
Tax brackets in Singapore
2007 & 2008
| Taxable income | Tax on this income |
|---|---|
| $0–$20,000 | Nil |
| $20,001–$30,000 | 3.5c for each $1 over $20,000 |
| $30,001–$40,000 | $350 plus 5.5c for each $1 over $30,000 |
| $40,001–$80,000 | $900 plus 8.5c for each $1 over $40,000 |
| $80,001–$160,000 | $4300 plus 14c for each $1 over $80,000 |
| $160,001–$320,000 | $15,500 plus 17c for each $1 over $160,000 |
| Over $320,000 | $42,700 plus 20c for each $1 over $320,000 |
A personal tax rebate of 20% was granted for 2008, up to a maximum of $2,000.
2013
| Taxable income | Tax on this income |
|---|---|
| $0–$20,000 | Nil |
| $20,001–$30,000 | 2c for each $1 over $20,000 |
| $30,001–$40,000 | $200 plus 3.5c for each $1 over $30,000 |
| $40,001–$80,000 | $550 plus 7c for each $1 over $40,000 |
| $80,001–$120,000 | $3,350 plus 11.5c for each $1 over $80,000 |
| $120,001–$160,000 | $7,950 plus 15c for each $1 over $120,000 |
| $160,001–$200,000 | $13,950 plus 17c for each $1 over $160,000 |
| $200,001–$320,000 | $20,750 plus 18c for each $1 over $200,000 |
| Over $320,000 | $42,350 plus 20c for each $1 over $320,000 |
All figures are in Singapore dollars.
Tax brackets in South Africa
The Minister of Finance announced new tax rates for the 2012–2013 tax year. They are as follows :[8]
Tax brackets for the 2012 year of assessment
| Taxable income | Tax on this income |
|---|---|
| R0–R150,000 | 18% of every Rand |
| R150,001–R235,000 | R27,000 plus 25% of the amount above R150,000 |
| R235,001–R325,000 | R48,250 plus 30% of the amount above R235,000 |
| R325,001–R455,000 | R75,250 plus 35% of the amount above R325,000 |
| R455,001–R580,000 | R120,750 plus 38% of the amount above R455,000 |
| R580,001 and over | R168,250 plus 40% of the amount above R580,000 |
Tax brackets for the 2013 year of assessment
| Taxable income | Tax on this income |
|---|---|
| R0–R160,000 | 18% of every Rand |
| R160,001–R250,000 | R28,800 plus 25% of the amount above R160,000 |
| R250,001–R346,000 | R51,300 plus 30% of the amount above R250,000 |
| R346,001–R484,000 | R80,100 plus 35% of the amount above R346,000 |
| R484,001–R617,000 | R128,400 plus 38% of the amount above R484,000 |
| R617,001 and over | R178,940 plus 40% of the amount above R617,000 |
Tax brackets in Switzerland
Personal income tax is progressive in nature. The total rate does not usually exceed 40%.
The Swiss Federal Tax Administration website provides a broad outline of the Swiss tax system, and full details and tax tables are available in PDF documents.
The complexity of the system is partly because the Confederation, the 26 Cantons that make up the federation, and about 2 900 communes [municipalities] levy their own taxes based on the Federal Constitution and 26 Cantonal Constitutions.
Tax brackets in Taiwan
Income tax rates (Individual)
Financial year 2013[9]
| Taxable income | Tax on this income | Effective tax rate |
|---|---|---|
| NT$0 – NT$272,000
[Includes Tax Free Threshold for below 70 of age (NT$85,000), Personal Standard Deduction (NT$79,000) and Payroll Income Deduction (NT$108,000)] |
Nil | 0% |
| NT$272,001 – NT$792,000 | 5% for each NT$1 for the next NT$520,000 | 0 – 3.28% |
| NT$792,001 – NT$1,442,000 | NT$26,000 plus 12% for each NT$1 for the next NT$650,000 | 3.28 – 7.21% |
| NT$1,442,001 – NT$2,622,000 | NT$104,000 plus 20% for each NT$1 for the next NT$1,180,000 | 7.21 – 12.97% |
| NT$2,622,001 – NT$4,672,000 | NT$340,000 plus 30% for each NT$1 for the next NT$2,050,000 | 12.97 – 21.3% |
| NT$4,672,001 and over | NT$995,000 plus 40% for each exceeding NT$1 |
Tax brackets in the United Kingdom
Tax brackets in the United States
2018 tax brackets
As of 1 January 2018, the tax brackets have been updated due to the passage of the Tax Cuts and Jobs Act:
| Marginal tax rate[10] | Single | Married filing jointly |
|---|---|---|
| 10% | Up to $9,525 | Up to $19,050 |
| 12% | $9,526 to $38,700 | $19,051 to $77,400 |
| 22% | $38,701 to $82,500 | $77,401 to $165,000 |
| 24% | $82,501 to $157,500 | $165,001 to $315,000 |
| 32% | $157,501 to $200,000 | $315,001 to $400,000 |
| 35% | $200,001 to $500,000 | $400,001 to $600,000 |
| 37% | over $500,000 | over $600,000 |
In the United States, the dollar amounts of the federal income tax standard deduction and personal exemptions for the taxpayer and dependents are adjusted annually to account for inflation. This results in yearly changes to the personal income tax brackets even when the federal income tax rates remain unchanged.
2011 tax brackets
| Marginal tax rate[11] | Single | Married filing jointly or qualified widow(er) | Married filing separately | Head of household |
|---|---|---|---|---|
| 10% | $0 to $8,500 | $0 to $17,000 | $0 to $8,500 | $0 to $12,150 |
| 15% | $8,501 to $34,500 | $17,001 to $69,000 | $8,501 to $34,500 | $12,151 to $46,250 |
| 25% | $34,501 to $83,600 | $69,001 to $139,350 | $34,501 to $69,675 | $46,251 to $119,400 |
| 28% | $83,601 to $174,400 | $139,351 to $212,300 | $69,676–$106,150 | $119,401 to $193,350 |
| 33% | $174,401 to $379,150 | $212,301–$379,150 | $106,151 to $189,575 | $193,351 to $379,150 |
| 35% | $379,151+ | $379,151+ | $189,576+ | $379,151+ |
Two higher tax brackets (36% and 39.6%) were added in 1993, and then taxes in all brackets were lowered in 2001 through 2003 as follows:
| 1992 | 1993–2000 | 2001 | 2002 | 2003–2007 |
|---|---|---|---|---|
| 15% | 15% | 15% | 10% | 10% |
| 15% | 15% | |||
| 28% | 28% | 27.5% | 27% | 25% |
| 31% | 31% | 30.5% | 30% | 28% |
| 36% | 35.5% | 35% | 33% | |
| 39.6% | 39.1% | 38.6% | 35% |
Internal Revenue Code terminology
Gross salary is the amount your employer pays you, plus your income tax liability. Although the tax itself is included in this figure, it is typically the one used when discussing one's pay. For example, John gets paid $50/hour as an administrative director. His annual gross salary is $50/hour x 2,000 hours/year = $100,000/year. Of this, some is paid to John, and the rest to taxes.
W-2 wages are the wages that appear on the employee's W-2 issued by his employer each year in January. A copy of the W-2 is sent to the Internal Revenue Service (IRS). It is the gross salary less any contributions to pre-tax plans. The W-2 form also shows the amount withheld by the employer for federal income tax.
W-2 wages = gross salary less (contributions to employer retirement plan) less (contributions to employer health plan) less (contributions to some other employer plans)
Total income is the sum of all taxable income, including the W-2 wages. Almost all income is taxable. There are a few exemptions for individuals such as non-taxable interest on government bonds, a portion of the Social Security (SS) income (not the payments to SS, but the payments from SS to the individual), etc.
Adjusted gross income (AGI) is Total Income less some specific allowed deductions. Such as; alimony paid (income to the recipient), permitted moving expenses, self-employed retirement program, student loan interest, etc.
Itemized deductions are other specific deductions such as; mortgage interest on a home, state income taxes or sales taxes, local property taxes, charitable contributions, state income tax withheld, etc.
Standard deduction is a sort of minimum itemized deduction. If you add up all your itemized deductions and it is less than the standard deduction you take the standard deduction. In 2007 this was $5,350 for those filing individually and $10,700 for married filing jointly.
Personal exemption is a tax exemption in which the taxpayer may deduct an amount from their gross income for each dependent they claim. It was $3,400 in 2007.
Sample tax calculation
Given the complexity of the United States' income tax code, individuals often find it necessary to consult a tax accountant or professional tax preparer. For example, John, a married 44-year-old who has two children, earned a gross salary of $100,000 in 2007. He contributes the maximum $15,500 per year to his employer's 401(k) retirement plan, pays $1,800 per year for his employer's family health plan, and $500 per year to his employer's Flexfund medical expense plan. All of the plans are allowed pre-tax contributions.
Gross pay = $100,000
W-2 wages = $100,000 – $15,500 – $1,800 – $500 = $82,200
John's and his wife's other income is $12,000 from John's wife's wages (she also got a W-2 but had no pre-tax contributions), $200 interest from a bank account, and a $150 state tax refund.
Total Income = $82,200 + $12,000 + $200 + $150 = $94,550.
John's employer reassigned John to a new office and his moving expenses were $8,000, of which $2,000 was not reimbursed by his employer.
Adjusted gross income = $94,550 – $2,000 = $92,550.
John's itemized deductions were $22,300 (mortgage interest, property taxes, and state income tax withheld).
John had four personal exemptions—himself, his wife and two children. His total personal exemptions were 4 x $3,400 = $13,600.
Taxable Income = $92,550 – $22,300 – $13,600 = $56,650.
The tax on the Taxable Income is found in a Tax Table if the Taxable Income is less than $100,000 and is computed if over $100,000. Both are used. The Tax Tables are in the 2007 1040 Instructions. The Tax Tables list income in $50 increments for all categories of taxpayers, single, married filing jointly, married filing separately, and head of household. For the Taxable Income range of "at least $56,650 but less than $56,700" the tax is $7,718 for a taxpayer who is married filing jointly.
The 2007 tax rates schedule[12] for married filing jointly is:
| If taxable income is over | but not over | then the tax is | of the amount over |
|---|---|---|---|
| $0 | $15,650 | 10% | $0 |
| $15,650 | $63,700 | $1,565.00 + 15% | $15,650 |
| $63,700 | $128,500 | $8,772.50 + 25% | $63,700 |
| $128,500 | $195,850 | $24,972.50 + 28% | $128,500 |
| $195,850 | $349,700 | $43,830.50 + 33% | $195,850 |
| $349,700 | $94,601.00 + 35% | $349,700 |
The tax is 10% on the first $15,650 = $1,565.00
plus 15% of the amount over $15,650 ($56,650 – $15,650) = $41,000 x 15% = $6,150.00
Total ($1,565.00 + $6,150.00) = $7,715.00
In addition to the Federal income tax, John probably pays state income tax, Social Security tax, and Medicare tax. The Social Security tax in 2007 for John is 6.2% on the first $97,500 of earned income (wages), or a maximum of $6,045. There are no exclusions from earned income for Social Security so John pays the maximum of $6,045. His wife pays $12,000 x 6.2% = $744. Medicare is 1.45% on all earned income with no maximum. John and his wife pays $112,000 x 1.45% = $1,624 for Medicare in 2007.
Most states also levy income tax, exceptions being Alaska, Florida, Nevada, South Dakota, Texas, Washington, New Hampshire, Tennessee and Wyoming.[13]
See also
References
- Kasprak, Nick. "2013 Tax Brackets". Tax Foundation. Retrieved 4 January 2012.
- "Individual income tax rates". www.ato.gov.au. Australian Taxation Office. Retrieved 7 April 2020.
- See line 1 "Basic Personal Amount"
- "Canadian income tax rates for Individuals – current and previous years". Cra-arc.gc.ca. 14 January 2014. Retrieved 15 April 2014.
- "Canadian income tax rates for Individuals – current and previous years". Cra-arc.gc.ca. 14 January 2014. Retrieved 15 April 2014.
- "CaConnectIndia.com".
- "Lembaga Hasil Dalam Negeri". Retrieved 16 September 2020.
- "Income tax rates for individuals (Find out about)". Ird.govt.nz. Archived from the original on 7 April 2005. Retrieved 15 April 2014.
- "Miscellaneous tax amendments - 2011 Budget Review" (PDF). Archived (PDF) from the original on 6 February 2023. Retrieved 28 May 2023.
- "賦稅法令相關之行政規則". Tax Administration, Ministry of Finance, ROC. 16 November 2012. Archived from the original on 27 January 2013. Retrieved 20 February 2013.
- "Tax Brackets | Income Tax Brackets 2013". Bankrate.com. Retrieved 15 April 2014.
- "2011 Tax Table" (PDF). Archived from the original (PDF) on 17 April 2012. Retrieved 28 May 2023.
- "2007 Federal Tax Rates Schedule". IRS. Archived from the original on 11 September 2007. Retrieved 17 September 2007.
- "Individual Income Tax Rates-2006". www.taxadmin.org. Archived from the original on 25 October 2006.