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Tax Bracket
Definition
A range of income taxed at a specific percentage rate in a progressive tax system.
Explanation
The US uses progressive tax brackets where different income ranges are taxed at different rates. For example, income from $0-$11,000 might be taxed at 10%, and income from $11,000-$44,725 at 12%. Only income WITHIN each bracket is taxed at that rate, not your entire income.
Understanding your tax bracket helps with financial planning decisions like whether to contribute to a retirement account or do a Roth conversion.
Example
If you earn $50,000, you don't pay 22% on all of it—only the portion above $44,725 is taxed at the 22% rate. The rest is taxed at lower brackets.