Slide MGT312 Slide02

Income Taxes
Chapter 3

Progressive and Marginal Tax
Rates

• Taxes are compulsory government-imposed
charges levied on citizens and their property.
• Progressive income tax is the tax rate which
increases as taxable income increase.
• Marginal tax rate is the tax rate which is
applied to income in each tax bracket range
at increasing rate.

Marginal Tax Rates
Segment of taxable
income

Marginal tax rate (%)

First $8,350

10

$8,351-$33,950

15

$33,951-$82,250

25

$82,251-$171,550

28

$171,551-$372,950

33

Above $372,950

35

Marginal Tax and Average Tax
• Marginal tax rate affects financial
decisions.
• Effective marginal tax rate is the total
marginal tax rate paid.
• Average tax rate is lower than marginal
tax rate.

Step 1: Determine Total Income
• Various types of income includes
▫ Wages and salaries
▫ Commissions
▫ Bonuses
▫ Royalty
▫ Rent income
▫ Capital gains and losses.

Step 1: Determine Total Income
(ctd)
• Capital gain occurs when selling price is
more than purchase price.
• Capital loss occurs when selling price is
less than purchase price.
• Long-term gain (loss) is taxed lower than
short-term gain (loss).