For example, under a 24% flat tax system, all Americans will pay 24% on all of their income, no matter how much or how little they earn. Take Our Poll: How Do You Think the Economy Will Perform in 2023? Flat Tax ScheduleĪs the name suggests, under a flat tax system, everyone pays the same rate on all of their income.
The net effect of all these is that about 40% of Americans are projected to pay no federal income tax at all for tax year 2022. Under a progressive tax system, various deductions or credits are allowed that can reduce the amount of tax that someone ultimately pays. At the top of the tax bracket range, those with taxable income over $539,900 ($647,850 for joint filers) will pay a 37% tax on each extra dollar of income that they earn above those levels. Everyone pays 10% tax on their first $10,275 of income ($20,550 for joint filers). But it’s important to note that in a progressive tax system, different tax rates apply to different levels of your income.įor tax year 2022 (2023 filers), there are seven tax brackets, ranging from 10% to 37%. Under a progressive tax schedule, the more that you earn, the higher the tax rate that you pay. See: 3 Ways Smart People Save Money When Filing Their Taxesĭo You Have a Tax Question? Ask a Tax Pro Progressive Tax Schedule But, how exactly are progressive and flat taxes different, and what are the pros and cons? Here’s a quick overview.įind Out: How 2023 Recession Will Differ From 2008 and How You Should Prepare Differently The differences between the two are fairly significant, and choosing one over the other is the subject of endless debate among economists, politicians and taxpayers alike.
The first, which is currently used in the United States, is a progressive tax schedule. When it comes to taxation, there are two primary schools of thought as to how it should be done.
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