Warning
Info
Warning
Info
Simple English definitions for legal terms
tax rate
Read a random definition: cost-plus contract
A quick definition of tax rate:
Tax rate: A percentage used to calculate how much money a person or business must pay in taxes. The average tax rate is the amount of tax paid divided by the amount of taxable income. The marginal tax rate is the rate applied to the last dollar earned, and the tax bracket is a level of income subject to a specific tax rate under federal or state law.
A more thorough explanation:
A tax rate is a percentage used to calculate the amount of tax that a person or business owes to the government. There are different types of tax rates:
The average tax rate is the total amount of tax paid divided by the taxable income. For example, if a person's taxable income is $50,000 and they paid $10,000 in taxes, their average tax rate would be 20%.
The marginal tax rate is the tax rate applied to the last dollar earned. For example, if a person's income is $50,000 and the marginal tax rate is 25%, then the tax owed on the last dollar earned would be 25 cents.
A tax bracket is a range of income subject to a particular tax rate. For example, if a person's income falls within the 28% tax bracket, they will pay 28% of their income in taxes.
Examples:
- John's taxable income is $100,000 and the tax rate is 20%. He owes $20,000 in taxes.
- Sarah's income falls within the 35% tax bracket. She will pay 35% of her income in taxes.
- Mike's marginal tax rate is 22%. If he earns an additional $1,000, he will owe $220 in taxes on that income.
These examples illustrate how tax rates are used to calculate the amount of tax owed based on income and tax brackets.