Tax Bracket

A tax bracket refers to the various tax rates that an individual pays under a progressive tax system, where taxpayers pay more tax as they earn more income. Starting in 2013, the Internal Revenue Service uses seven tax brackets: 10, 15, 25, 28, 33, 35, and 39.6 percent. The dollar thresholds for each tax bracket vary depending on the filing status used by the taxpayer.

For example, for the 2013 tax year, those filing using the Single filing status have the following tax brackets: 10 percent on income up to $8,925; 15 percent on income up to $36,250; 25 percent on income up to $87,850; 28 percent on income up to $183,250; 33 percent on income up to $398,350; 35 percent on income up to $400,000; and 39.6 percent on income over $400,000.

This means that the first $8,925 of taxable income is taxed at 10 percent, the taxable income above $8,925 up to $36,250 is taxed at 15 percent, and so on until the final dollar of taxable income is accounted for.

For example, if an individual earns $100,000 in taxable income after deductions and exemptions, the individual's income tax would be $21,293 ($8,925 x 10% + ($36,205 - $8,925) x 15% + ($87,850 - $36,250) x 25% + ($100,000 - $87,850) x 28%).