Taxes · Module 2 of 6
What your rate really is
How tax brackets really work, and the difference between the rate on extra income and the rate you actually paid.
Key terms in What your rate really is
- Tax bracket
A tax bracket is a range of income taxed at one particular rate under a progressive system. Income is divided into layers, and each layer carries its own percentage, usually rising from the bottom layer to the top. Moving into a higher bracket changes the rate only on the income that falls inside it.
Source: Internal Revenue Service, Federal income tax rates and brackets
- Marginal tax rate
The marginal tax rate is the rate applied to the last layer of a person's income, meaning the rate on the next unit earned. It is the bracket rate at the top of taxable income, not an average across everything earned. It is the figure that determines how any additional income would be taxed.
Source: Internal Revenue Service, Federal income tax rates and brackets
- Taxable income
Taxable income is the amount of income on which tax is actually computed, after subtractions such as the standard deduction or itemized deductions have been taken out. Bracket rates are applied to this figure rather than to gross pay. For that reason it is usually smaller than total earnings.
Source: Internal Revenue Service, Topic no. 551, Standard deduction
Every term on Lever is in the money glossary.
About this module
What your rate really is is part of Taxes, one of 15 subjects in Lever. It’s a short run of 5 lessons, about 13 minutes in all, so you can finish it in one sitting.
Every lesson takes one idea at a time. You read it with the math worked out step by step, answer a question that puts it to use, then see why the right answer is right and why the others aren’t.
It’s for anyone who was never taught this, and you don’t need to know anything first. Every lesson is free. Lever works out what you already know, so you can start here or let your path bring you to it.
More in Taxes
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1
The part that is not yours
Why we pay taxes, what income they’re worked out on, and how to set tax aside yourself when no one does it for you.
5 lessons -
3
What you can subtract
Tax deductions versus tax credits, the standard amount versus itemizing, and keeping proof for your claims.
8 lessons -
4
The paperwork year
Filing your tax return: who needs to, when it’s due, whether to pay for help, and how to fix a mistake.
7 lessons -
5
What was already taken
The tax taken from your paycheck, why it’s never exactly right, and how it gets squared up at the end of the year.
5 lessons -
6
Money that is not wages
How tax works on investment gains, losses and dividends, and how a loss can lower the tax on a gain.
6 lessons
Try this module
It’s part of Taxes. Lever will bring it to you when you’re ready, or you can go straight there.