Final answer:
An individual's tax rate schedule is determined by their filing status and income level, with the United States employing a progressive tax system where higher incomes are subjected to higher tax rates. Adjusted gross income, after deductions and exemptions, establishes your taxable income, which is then taxed at different rates depending on your filing status.
Step-by-step explanation:
The tax rate schedule used by an individual is determined by his or her filing status and income level. The United States has a progressive tax system, meaning that as an individual's income increases, both the amount of tax paid and the percentage of additional income paid as tax also increase.
In the context of the 2010 tax year, for example, single filers had different taxable income thresholds that determined which tax rates applied to them. From 10% for low-income individuals up to 35% for high-income individuals, these tax rates are applied progressively to different portions of an individual's income.
Your adjusted gross income (AGI) is crucial in determining how much tax you owe. The AGI is your income from all sources minus certain deductions.
After accounting for the standard deduction and exemptions, you arrive at your taxable income, which is then subjected to different tax brackets depending on your filing status and overall income. For instance, if you are single and earned $15,000 in 2023, the first $11,000 would fall under the 10% bracket, while the remaining $4,000 would be taxed at 12%.
Moreover, there can be additional complexities involving tax credits, deductions beyond the standard deduction for specific expenses, and the need to calculate the alternative minimum tax (AMT) in certain cases. The precise calculation of one's tax liability can therefore vary significantly depending on individual financial circumstances.