Final answer:
The tax rate schedule an individual uses is determined by filing status and income level, reflecting a progressive tax system where higher income means a higher marginal tax rate. Deductions and exemptions are subtracted to calculate taxable income, which then determines the tax obligation.
Step-by-step explanation:
The rate schedule used by an individual is determined by his or her filing status and income level. The tax rate increases as an individual's income increases, which is indicative of a progressive tax system. For the year 2010, there were different tax schedules based on whether you were filing alone, as a household, and other considerations. The schedules reflect the application of marginal tax rates, which means that as a person earns more, they will pay a higher rate on the additional income, not the previous earnings.
The basic formula for determining the taxes paid is taxes paid = tax rate x income. To calculate one's taxable income, deductions and exemptions must be subtracted from the adjusted gross income. With this taxable income, individuals consult the appropriate tax rate schedule to determine their obligation.
In the example for a single person earning $15,000 annually, the first $11,000 is taxed at 10%, resulting in $1,100 of tax, while the income between $11,000 and $15,000 is taxed at 12%, adding $480, for a total tax of $1,580. This illustrates the concept of progressive taxation and the marginal tax rate.