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What Is a Tax Rate?
Let me tell you directly: a tax rate is the percentage at which your income or a corporation's income gets taxed. In the United States, we have a progressive tax rate system set by the federal government and many states. For 2024 and 2025, the federal income tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
In this system, the tax rate goes up as your taxable income increases. That means if you earn more, you pay a higher percentage on the additional income, which collects more from those with higher incomes.
Key Takeaways
You should know that a tax rate is simply the percentage taxed on income for individuals or corporations. The U.S. uses progressive taxation, so higher income means a higher tax percentage. We apply these rates in marginal increments, which often results in an effective tax rate lower than your top bracket.
Tax rates aren't just for income; they also apply to sales on goods and services or capital gains on investments. Other countries might use a flat tax rate or a regressive one instead.
Understanding Tax Rates
Governments tax residents to build and maintain infrastructure and support social services. The money collected improves the nation, society, and everyone in it. In the U.S. and many other places, this tax rate applies to your income.
It doesn't matter if your income comes from wages, salary, investments like dividends and interest, capital gains, or profits from selling goods or services—a percentage of both earned and unearned income goes to the government.
For income tax, the rate is the percentage of your taxable income or a corporation's earnings that you owe to federal, state, and sometimes municipal governments. Your rate depends on your marginal tax bracket, and the U.S. system's marginal rates show its progressive nature.
Current Tax Rates
Your tax bracket depends on your filing status: single, head of household, married filing separately, or married filing jointly. I'll outline the marginal tax brackets for 2024 and 2025 below.
Tax Brackets for 2024
- 10%: Single $11,600 or less; Joint $23,200 or less; Separate $11,600 or less; HOH $16,550 or less
- 12%: Single $11,601 to $47,150; Joint $23,201 to $94,300; Separate $11,601 to $47,150; HOH $16,551 to $63,100
- 22%: Single $47,151 to $100,525; Joint $94,301 to $201,050; Separate $47,151 to $100,525; HOH $63,101 to $100,500
- 24%: Single $100,526 to $191,950; Joint $201,051 to $383,900; Separate $100,526 to $191,950; HOH $100,501 to $191,950
- 32%: Single $191,951 to $243,725; Joint $383,901 to $487,450; Separate $191,951 to $243,725; HOH $191,951 to $243,700
- 35%: Single $243,726 to $609,350; Joint $487,451 to $731,200; Separate $243,726 to $365,600; HOH $243,701 to $609,350
- 37%: Single over $609,350; Joint over $731,200; Separate over $365,600; HOH over $609,350
Tax Brackets for 2025
- 10%: Single $11,925 or less; Joint $23,850 or less; Separate $11,925 or less; HOH $17,000 or less
- 12%: Single $11,926 to $48,475; Joint $23,851 to $96,950; Separate $11,926 to $48,475; HOH $17,001 to $64,850
- 22%: Single $48,476 to $103,350; Joint $96,951 to $206,700; Separate $48,476 to $103,350; HOH $64,851 to $103,350
- 24%: Single $103,351 to $197,300; Joint $206,701 to $394,600; Separate $103,351 to $197,300; HOH $103,351 to $197,300
- 32%: Single $197,301 to $250,525; Joint $394,601 to $501,050; Separate $197,301 to $250,525; HOH $197,301 to $250,500
- 35%: Single $250,526 to $626,350; Joint $501,051 to $751,600; Separate $250,526 to $375,800; HOH $250,501 to $626,350
- 37%: Single over $626,350; Joint over $751,600; Separate over $375,800; HOH over $626,350
Examples of Tax Calculations
Take a single individual earning $65,000 in 2024: you pay 10% on the first $11,600, 12% on the next amount up to $47,150, and 22% on the rest, totaling $9,214.
For someone earning $150,000: it's 10% on the first portion, 12% next, 22% after that, and 24% on the remaining, coming to $28,847. The person in the lower bracket pays less overall than someone in a higher one.
Remember, marginal tax rates mean different parts of your income get taxed at higher rates as income rises. These examples show you don't pay a flat rate on all income; that's why effective rates are lower—14.18% for the first and 19.23% for the second.
Sales and Capital Gains Tax Rates
Tax rates extend to sales tax on goods and services, property tax, and capital gains. For sales tax, it's added at purchase and varies by state—4% in Georgia, 7.25% in California.
Capital gains from investments count as income, with rates depending on holding time. Short-term (one year or less) matches your ordinary income rate, so 22% if you're in that bracket.
Long-term gains (over a year) range from 0% to 20%. For 2024, individuals with income up to $47,025 pay 0%, up to $518,900 pay 15%, and over pay 20%. Similar brackets apply for joint filers, heads of household, and separate filers.
For 2025, the thresholds adjust slightly: individuals up to $48,350 pay 0%, up to $533,400 pay 15%, and over pay 20%, with corresponding ranges for other statuses. Qualified dividends follow long-term rates, non-qualified follow short-term.
Tax Rates Abroad
Tax rates differ by country. Some use progressive systems like ours, others regressive where rates increase as income decreases, or proportional flat rates applying the same percentage regardless of income. Bolivia and Greenland use flat taxes.
How Are Tax Rates Imposed?
A government defines and imposes tax rates on goods, services, or income, expressed as a percentage of the taxed value.
What Is a Tax Bracket?
A tax bracket is a range of incomes taxed at a specific rate in a progressive system, where rates rise with income growth.
What Is the Difference Between a Marginal Tax Rate and an Effective Tax Rate?
The marginal rate is the tax on each additional income level per bracket, while the effective rate is your total tax divided by total income, giving the actual percentage paid.
The Bottom Line
In summary, a tax rate is the percentage taxing income for individuals or corporations. The U.S. progressive system means higher earners pay a greater percentage. These rates also apply to sales and capital gains, while other nations might use flat or regressive systems.
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