A Complete Guide of Federal Income Tax: Rates and Functions

The federal income tax refers to the greatest revenue source for the government of the US. Hence, the tax possesses seven rates; each rate applies to the income of a specific range. Before handling tax & accounting services, let's check some basics of federal income tax.

1. Progressive nature of the tax

The rates of Federal income tax are progressive; hence with the increase of taxable income, the tax rate also becomes high. Different rates of tax become levied on Incomes in different brackets or ranges according to the filing status of the taxpayer. Additional tax rates and schedules apply to taxpayers to file taxes as household heads and married couples filing distinct Returns.

2. Income of different tax brackets

Every tax rate applies to the income of specific tax brackets.  In this way, if the taxpayer sufficiently earns to access a new bracket with letter tax rates, then the total income of that individual will not be taxed at that specific rate. Even the taxpayers in top brackets have some specific income segment taxed at low rates in tax schedules.

3. Variations in tax brackets in single and married individuals

Tax brackets for singles are exactly half of the brackets for married individuals, except for penultimate brackets. In this structure, a special facility of “marriage bonus” is applicable for married individuals as they need to pay less amount of tax through jointly filing tax by each partner.

On the other hand, it becomes a major problem when couples need to pay a greater amount of tax filing due to joint returns in comparison to filing returns as a single person.

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