A tax bracket refers to a range of income that is taxed at a specific rate under a progressive tax system.
As a person’s income increases, portions of their income are taxed at higher rates according to these brackets. This means that not all income is taxed at the highest rate a person qualifies for, only the income within each bracket is taxed at that bracket’s rate.
The structure ensures that those with higher earnings pay a greater percentage of their income in taxes, promoting fairness in the tax system.
Understanding your tax bracket helps in planning finances and estimating how much tax you owe.