In a progressive tax system, such as the one in the U.S., higher rates of income are charged at a higher tax rate. Each portion of income that is charged at a certain rate is called a tax bracket. U.S. taxpayers are divided into several tax brackets, with those in the lower brackets paying a smaller percentage of income in taxes than those in higher brackets.
Lower Income, Lower Rates
When you file your tax return, the IRS will charge you a tax rate that gets progressively larger as your reported income goes up. For example, for the 2015 taxation year, taxpayers who earn up to $9,225 are charged 10 percent of their income. That percentage rises to15 percent of their income for those who earn $9,226 to $37,450 and continues to move higher from there. The highest tax bracket for 2015 is 39.6 percent for income of $413,201 and above.
Different Tax Brackets
When your income falls into several tax brackets, you are not charged the highest tax rate for all of your income. Every American is charged at the lowest rate for the first portion of his income and is progressively taxed more as income increases.