INCOME TAX BRACKET Meaning and
Definition
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An income tax bracket is a range or category of income that determines the specific tax rate or percentage applied to an individual or household's taxable income. Tax brackets are primarily employed in progressive tax systems, where the tax rates increase as a person's income rises. These brackets help determine how much tax an individual owes to the government based on their income level.
Typically, an income tax bracket system consists of multiple brackets. Each bracket encompasses a specific income range and is associated with a corresponding tax rate. As an individual's income increases, they progress through these different brackets, with their income taxed at increasingly higher rates.
For instance, if a tax system has three brackets, individuals within the lowest bracket may be taxed at a lower rate, while individuals within the highest bracket face a higher tax rate. The tax bracket thresholds determine the range of income that corresponds to each bracket.
Income tax brackets serve as a progressive way of tax collection, aiming to ensure that those with higher incomes contribute more towards public services and governmental expenses. Governments often adjust these brackets periodically to account for economic changes or to meet fiscal objectives. Taxpayers use these brackets to determine their tax liability and to estimate how much they owe in taxes based on their annual income.
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