Legal Definitions - tax rate

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.