Final answer:
A 3.8% tax is levied on the net investment income of certain taxpayers whose income exceeds specific levels. The U.S. tax system with various deductions, exemptions, and tax credits affecting final tax liabilities. Post-2017 tax reforms decreased the highest tax rate from 39.6% to 37%.
Step-by-step explanation:
A 3.8% tax is imposed on the net investment income of certain taxpayers whose modified adjusted gross income exceeds a certain threshold. Understanding this requires a grasp of basic income tax principles. Taxable income is computed by subtracting deductions and exemptions from one's adjusted gross income.
This could apply to various forms of income, including wages, interest, and unemployment compensation. With the 1040EZ, for instance, a simple calculation can be used when the taxpayer has a straightforward financial situation.
The U.S. income tax system is progressive, meaning as an individual's income increases, their tax rate on additional income also rises, indicated by phrases like "move into a higher tax bracket." For instance, in 2017, tax brackets for a single person ranged from 10% on taxable income up to $9,325 to 39.6% on income over $418,401. Post the Tax Cuts and Jobs Act of 2017, the tax brackets shifted with the highest rate reduced to 37%.
The progressive nature of taxation implies that individuals with higher incomes pay a larger portion of their income in taxes, as evident in the top 2.7% of filers paying over half the income tax revenue in 2014. Moreover, tax credits and the alternative minimum tax further complicate tax calculations. Overall, knowledge of these tax fundamentals is not only crucial for economic studies but also practical for personal tax filing.