Many people do not pay a lot of attention to the taxes they pay the federal government. Small amounts of your paycheck are withheld every period and paid into things like social security and federal income tax. For those that were not aware, the U.S. system of taxation is a progressive system comprised of varying brackets.
In the United States, the more money an individual earns, the more of their income is taxed. A tax bracket is sort of like a category that tax filers are placed into based on the amount of income they earn throughout the tax year. Amounts of money are taxed at a different rate each time they surpass a certain threshold, progressively getting higher and higher as income goes up.
Tax brackets change from year to year and the 2010 tax brackets have individuals making 0 to 8375 dollars in the lowest tier of income tax rate. This bracket is taxed at 10 meaning ten percent of the annual earnings are paid in income taxes. The scale goes up from there at 15 for earning 8,375 to 34,000, 25 for earning 34,000 to 82,400, 28 for earning 82,400 to 171,850, 33 for earning 171,850 to 373,650 and 35 on any amount above that.
The U.S. tax system is progressive meaning that individuals are not charged a particular amount in relation to the tax bracket they are in on all earnings. For example if you made 50,000 in 2010, the entire amount would not be taxed at 25 or 12,500 dollars owing. Instead, the computation would be broken down like this. 0 to 8,375 would be taxed at 10 or 837.50, the amount past that and before 34,000 would be taxed at 15 or 34,000 8375 25,625 x .15 3,843.75. The remaining amount taxed is 25 or 16,000 x .25 4,000. 
These three amounts are then added together to determine the entire amount of income tax liability or 837.50 3,843.75 4,000 8,681.25 dollars in federal income taxes. In contrast, if the entire amount were taxed at the rate applied to the bracket the earnings fall into, the amount would be significantly more at 12,500 dollars or 25 of 50,000.
An individuals tax rate and bracket can be applied in another way when determining eligibility for tax savings accounts. For example if a person wants to open a Roth ira, there are stringent rules governing these accounts. If a persons AGI (adjusted gross income) exceeds 120,000 dollars, they will not be eligible to contribute to their IRA per Roth IRA rules. A Roth IRA is designed to provide a tax shelter for qualifying individuals to save for retirement and withdraw funds tax free at age 59 and one half at the earliest.
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