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Financial Literacy - Taxes
OVERVIEW
Understanding your tax bracket
The U.S. tax system is progressive, with six income tax brackets ranging from 10 percent to 35 percent.
Taxes made easy

What's your effective tax rate?

While it's true that the Internal Revenue Service usually taxes every last cent we make, not every penny is taxed the same.

When it comes to ordinary wage or salary income, the U.S. tax system is progressive, with individual tax amounts currently spread over six income brackets. The tax rates begins at 10 percent and go as high as 35 percent. In between are the 15 percent, 25 percent, 28 percent and 33 percent brackets.

By stair-stepping tax brackets, our progressive taxation system means that all levels of income aren't taxed at the same rate. The first portion of your earnings is taxed at the lowest, 10-percent, rate. The subsequent rates start applying when your income hits a set level for your filing status.

This means that your income is then taxed at the applicable rate for each portion of your earnings that falls into a particular range. Each bracket also takes into account a taxpayer's filing status, such as single or married filing a joint return.

In addition, the tax bracket amounts are adjusted each year to reflect inflation. Here are the 2007 brackets, which you'll use when filing your 2007 return next year, and the 2008 tax brackets, which will give you an idea of your 2008 tax bill.

2007 tax brackets
Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of Household
10% Up to $7,825 Up to $15,650 Up to $7,825 Up to $11,200
15% $7,826 - $31,850 $15,651 - $63,700 $7,826 - $31,850 $11,201 - $42,650
25% $31,851 - $77,100 $63,701 - $128,500 $31,851 - $64,250 $42,651 - $110,100
28% $77,101 - $160,850 $128,501 - $195,850 $64,251 - $97,925 $110,101 - $178,350
33% $160,851 - $349,700 $195,851 - $349,700 $97,926 - $174,850 $178,351 - $349,700
35% $349,701 or more $349,701 or more $174,851 or more $349,701 or more

2008 tax brackets
Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of Household
10% Up to $8,025 Up to $16,050 Up to $8,025 Up to $11,450
15% $8,026 - $32,550 $16,051 - $65,100 $8,026 - $32,550 $11,451 - $43,650
25% $32,551 - $78,850 $65,101 - $131,450 $32,551 - $65,725 $43,651 - $112,650
28% $78,851 - $164,550 $131,451 - $200,300 $65,726 - $100,150 $112,651 - $182,400
33% $164,551 - $357,700 $200,301 - $357,700 $100,151 - $178,850 $182,401 - $357,700
35% $357,701 or more $357,701 or more $178,851 or more $357,701 or more
-- Posted: Dec. 17, 2007
 
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