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Chapter 27 - Chapter 27 Tax Rates The Alternative Minimum...

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Chapter 27 Tax Rates The Alternative Minimum Tax (AMT)
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Tax Rates Tax on individual’s “net taxable income” (the result of all we have studied and more) Is a “progressive” tax which basically means it gets progressively higher as a percentage the higher your net taxable income goes. As opposed to a “regressive” tax like a state sales tax, which use a static rate which results in a higher portion of the lower income taxpayer’s income going to the tax.
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Tax Rates Currently, there are 6 “brackets” of tax (excluding those on the types of capital gains we studied previously) 10% 15% 25% 28% 33% 35%
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Tax Rates Prior to 1981, some high income taxpayers were paying a marginal federal rate of 70%! Add a state income tax rate of around 9%, and that left some taxpayers with as little as 21% of their income after taxes!
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Tax Rates The tax is applied on a “marginal” scale. This means that the first dollar of net taxable income that puts you in a new bracket does NOT mean that all of your income is now taxed at the higher rate. Only the excess over the “bracket” amount is taxed by that particular percentage.
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Tax Rates Example: if the 10% tax rate taxes income up to $20,000, and taxpayer makes $22,000
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