That's how much tax would be calculated by someone who wasn't earning very much. Let's see how much tax some other people might calculate.

What if you had a taxable income of $60,000 a year? Go to the section for people with a taxable income of more than $31,677 but less than $63,354.

Everybody calculates 16% on the first $31,677 of taxable income. This is the amount on line 7. Each section on the schedule, except the first one, has the same numbered lines. In our simplified schedule, we are only using four of these lines - 4, 6, 7 and 8. On the real schedule, the numbers go from 2-8. On line 7 you see that 16 % of $31,677 is $5,068.

Next, take $31,677 away from your taxable income. (The tax on this first amount has already been assigned. It's on line 7.)
      $60,000 - $31,677 = $28,323

On this amount, you calculate 22% as tax.

Use your calculator and multiply $28,323 by .22.
      $28,323 x .22 = $6,231.06

You write this amount on line 6. Then add the amounts on lines 6 and 7 and put the answer on line 8.

      $ 6,231.06 (line 6)
      $ 5,068.00 (line 7)
      $11,299.06 (line 8)

If you were a minimum wage earner, you calculated $2,279.68. If you earned $60,000, you calculated $11,299.06.

Everybody calculates 16% on the first $31,677 of taxable income, but if you earn more than this, you use a higher rate to calculate the tax you have to pay on the rest of your income. This is what is meant by a progressive tax. The higher your taxable income, the higher the rate you are taxed at.

Take a look at the sections for those who earn even more than $60,000. Work out how much tax someone would calculate who has a taxable income of $100,000, and how much someone would calculate who made $200,000 a year in taxable income. In each section, on line 7 you are given the amount of tax that has already been assigned, so you don't have to work that out.

With a taxable income of $100,000 your tax works out to be $ _____.

With a taxable income of $200,000 your tax works out to be $ _____.

You are probably thinking that if you earn only the minimum wage and more than $2,000 of this has to be paid as income tax, that doesn't leave you with a lot of money to live on. Fortunately, there is one more step to go. We are allowed to deduct certain things to reduce the amount of tax we have to pay. This is what is meant by a non-refundable tax credit. You will read about these in the next section.

Answers:

If you have a taxable income of $100,000 you calculate $ 21,564.70 in tax.

If you have a taxable income of $200,000 you calculate $ 50,475.00 in tax.