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Year 2006 income brackets and tax rates

An individual's marginal income tax bracket depends upon their income and their tax-filing classification. As of 2006, there are six tax brackets (ranging from 10% to 35%) and four classifications: single, married filing jointly (or qualified widow or widower), married filing separately, and head of household.

Marginal Tax Rate Single Married Filing Jointly or Qualified Widow(er) Married Filing Separately Head of Household
10% $0  --  $7,550 $0  --  $15,100 $0  --  $7,550 $0  --  $10,750
15% $7,551  --  $30,650 $15,101  --  $61,300 $7,551  --  $30,650 $10,751  --  $41,050
25% $30,651  --  $74,200 $61,301  --  $123,700 $30,651  --  $61,850 $41,051  --  $106,000
28% $74,201  --  $154,800 $123,701  --  $188,450 $61,851  --  $94,225 $106,001  --  $171,650
33% $154,801  --  $336,550 $188,451  --  $336,550 $94,226  --  $168,275 $171,651  --  $336,550
35% $336,551+ $336,551+ $168,276+ $336,551+

An individual pays tax at a given bracket only for each dollar within that bracket's range. For example, a single taxpayer who earned $10,000 in 2006 would be taxed 10% of each dollar earned from the 1st dollar to the 7,550th dollar (10% * $7,550 = $755), then 15% of each dollar earned from the 7,551st dollar to the 10,000th dollar (15% * $2,450 = $367.50), for a total of $1,122.50. Notice this amount ($1,122.50) is lower than if the individual had been taxed at 15% on the full $10,000 (for a tax of $1,500). This is because the individual's marginal rate (the percentage tax on the last dollar earned, here 15%) has no effect on the income taxed at a lower bracket (here the first $7,550 of income taxed at 10%). This ensures that every rise in a person's pre-tax salary results in an increase of their after-tax salary, contrary to the popular misconception that being bumped into a higher tax bracket reduces after-tax income.

Claiming deductions may reduce an individual's tax liability by a rate equal to the marginal tax rate of their particular tax bracket, with a corresponding reduction in returns as the individual crosses in to a lower tax bracket. For example, if an individual is able to increase the amount of their deduction by $1000 with a last-minute donation to a charitable organization, and the individual's adjusted gross income is $500 in to the 25% marginal tax bracket, the donation will reduce the tax liability of the individual by ($500 * 25%) + ($500 * 15%) = $200.

 
 

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