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The United States has a progressive tax system, which means your income is taxed at different rates depending on your income. In some cases, the same rate applies to all individuals, but in many instances, people come into contact with different rates. When you start working and earning more money over time, it's likely that the amount in taxes you pay will go up each year since you're earning more money. There are also deductions and credits that may reduce how much money comes out of your paycheck and ultimately what your overall tax bill is.
One thing to keep in mind is not all types of income are taxed equally either. Different types of income are taxed at different rates, which means you'll pay more in taxes on some types of income than others.
How is income taxed?
Individuals who earn a certain amount of money each year will pay that same amount in taxes at their federal, state and local levels. The IRS defines this amount as adjusted gross income (AGI). This amount is the total you receive from all your sources of income during the year. It may be your salary for the year plus your wages, but it could also be any other source of income including investments like dividend or interest payments or even alimony or retirement benefits.
One thing to keep in mind is not all types of income are taxed equally either. Different types of income are taxed at different rates, which means you'll pay more in taxes on some types of income than others.
How is income taxed?
Individuals who earn a certain amount of money each year will pay that same amount in taxes at their federal, state and local levels. The IRS defines this amount as adjusted gross income (AGI). This amount is the total you receive from all your sources of income during the year. It may be your salary for the year plus your wages, but it could also be any other source of income including investments like dividend or interest payments or even alimony or retirement benefits.
