Final answer:
The tax calculated using the Tax Table can vary slightly from the Tax Rate Schedules due to rounding and individual circumstances affecting tax liabilities, such as exemptions, deductions, tax credits, and the alternative minimum tax. Tax Tables simplify the marginal tax rates found in the Tax Rate Schedules, which change as income rises.
Step-by-step explanation:
Differences Between Tax Tables and Tax Rate Schedules
Although the Tax Table is derived from the Tax Rate Schedules, the tax calculated using the two methods may vary slightly because of the way taxable income is handled within the tax system. The Tax Table is a simplification of the Tax Rate Schedules, which are based on marginal tax rates, or the tax rate paid on additional income.
For example, if someone's taxable income is $20,000, the Tax Table indicates they owe 837.50 + 0.15 × (20,000 - 8,375), which equals $2,581.25. However, the tax might differ slightly from the amount calculated using the Tax Rate Schedules due to the standard rounding that occurs in the Tax Table and various tax code provisions that affect individual circumstances differently.
Marginal tax rates illustrate that as an individual's income increases, not only does their total tax liability increase, but the proportion of tax paid on additional income also increases. The marginal tax rate affects taxpayers differently based on their income level, and those differences can be partly smoothed out in the Tax Tables.
Furthermore, the taxable income calculation considers adjusted gross income minus any deductions and exemptions. Once the taxable income is established, different rates apply to different levels of income. Adjustments like tax credits or the alternative minimum tax can influence the final tax liability, leading to variations between the calculated tax using the Tax Table and the Tax Rate Schedules.