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<v 0>Say you strike gold, get a new job or lose your job.</v>

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<v 2>With each life situation, what you pay in income taxes may change.</v>

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How much depends on the tax bracket system,

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which can be confusing.

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U.S. federal and some state income taxes are based on the progressive tax

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system.

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That means that high income individuals pay more in income taxes than low and

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middle income individuals. Over the years,

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income taxes have varied a lot from the lowest in 1913 to the highest in 1944.

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For each tax year,

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the IRS sets specific tax rates for different tax brackets.

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The one you fall in depends on your income and filing status.

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But being in one specific tax bracket doesn't mean you pay that federal

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income tax rate on everything you make.

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The government decides how much tax you owe by dividing your taxable income into

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buckets known as tax brackets,

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and each bucket gets taxed at the corresponding tax rate.

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If Sarah made $75,000 in 2020,

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she would fall in the 22% income bracket.

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She would pay 10% on $9,875,

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12% on $30,249 and 22% on

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$34,874. With the income bracket system,

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she isn't paying 22% on all her income. She's paying less.

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If Scott made $2 million in 2020,

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he would fall in the 37% income tax bracket.

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This is what his income taxes would look like.

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<v 0>He isn't paying 37% tax on all his income.</v>

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He's paying that rate only on every dollar he makes above about a half a million

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dollars.

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<v 2>In other words, everyone, whether rich or poor,</v>

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is paying less in federal income taxes than it might appear.