Marginal Tax Rates Flashcards, test questions and answers

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What is Marginal Tax Rates?

Marginal tax rates refer to the rate of taxation that is applied to an individual or a corporation’s income. The marginal tax rate is the rate of tax that applies to each additional dollar earned. This means that someone earning $100,000 will pay different rates on different parts of their income depending on their marginal tax bracket. In the United States, marginal tax rates are determined by the Internal Revenue Service (IRS). They are set according to filing status and taxable income. There are seven brackets for individuals, ranging from 10% up to 37%. The highest earners will be subject to a top marginal rate of 37%, while those in lower brackets may see as little as 10% or 12%. Corporations also have their own set of brackets and can potentially face even higher taxes than individuals do. Marginal tax rates can have a significant effect on an individual’s overall take-home income. For example, if someone earns $50,000 and is subject to a 22% marginal tax rate, they would be paying nearly half of their income in taxes. As such, it is important for taxpayers to understand what bracket they fall into and how much money they may end up paying in taxes each year. There has been significant debate over whether or not marginal tax rates should be adjusted in order to provide more equitable taxation across all incomes levels. Those in favor argue that higher earners should pay more due to their capacity for wealth accumulation, while those opposed believe it could discourage people from working hard and earning more money since they would end up facing higher taxes with each additional dollar earned. Ultimately this debate will continue as governments look for ways to make sure everyone pays their fair share when it comes time for filing taxes each year.