Final answer:
Each separate range of income subject to a different tax rate is referred to as a tax bracket. In a progressive tax system, such as in the U.S., tax brackets result in higher income individuals paying a higher percentage on income that is within those higher brackets.
Step-by-step explanation:
The separate ranges of income that are subject to different tax rates are referred to as tax brackets. A progressive tax system like the one in the U.S. imposes higher marginal tax rates on individuals with higher incomes, meaning that people pay a higher percentage on income that falls within higher brackets. Tax brackets define how much tax will be paid on each additional dollar earned as a person's income goes up. As an example, for a single person in 2017, the income up to $9,325 was taxed at a rate of 10%, and the income between $9,326 to $37,950 was taxed at 15%, illustrating the progressive nature of the tax system.
Taxable income is calculated by subtracting deductions and exemptions from one's adjusted gross income. The tax schedule a household faces can vary based on their taxable income and the applicable brackets. These brackets are typically adjusted for inflation to prevent 'bracket creep,' where individuals would end up paying a higher percentage of their income in taxes solely due to inflation. Finally, various tax credits and the alternative minimum tax can also affect the final tax liabilities.