How Progressive Income Tax Works
A progressive tax system means that people with higher incomes pay a higher percentage of their income in taxes. Instead of one flat rate, your income is divided into "buckets" or tax brackets.
Marginal vs. Effective Tax Rate
Many people get confused by these two terms:
- Marginal Tax Rate: This is the tax percentage applied only to the very last dollar you earned. Being in the "22% bracket" doesn't mean you pay 22% on everything.
- Effective Tax Rate: This is the actual percentage of your total income that goes to the government (Total Tax divided by Total Income). It is almost always lower than your marginal rate.
Example Calculation
If the first $10,000 is taxed at 10% and the next $30,000 is taxed at 12%, an individual earning $15,000 would pay:
- 10% on the first $10,000 = $1,000
- 12% on the remaining $5,000 = $600
- Total Tax: $1,600
Why Use a Tax Calculator?
Our tool helps you visualize how much of your next raise actually stays in your pocket and helps with annual budgeting. Please note that this tool provides an estimate and does not include specific deductions, credits, or local state taxes.