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you'll hear the word tax bracket thrown around a lot and there's often a misunderstanding of what a tax bracket is so that's what we're gonna do in this video and I'm gonna do it in a very general simple way that doesn't use the exact same tax code of any particular country but most countries use some type of a progressive tax system that has some type of tax brackets so let's say my country has has a tax code that says between zero dollars of income and ten thousand dollars of income ten thousand dollars of income you pay no taxes on it and then between 10,000 and let's say 50,000 let me write that a little bit neater between 10,000 and 50,000 so that's 50,000 right over there you pay 20 percent of your income and then let's just say this is very simple much simpler than any actual tax codes out there and let's say anything above $50,000 anything above 50,000 dollars you pay 30 percent 30 percent of your income now the reason why I say that there's confusion here as many people feel that if their income throws them into a bracket that they pay 20 percent on all of their money but that's not the way it works and let's just do a couple of examples so let's say that someone earns so let's say income income and then let's think about what how much tax is how much taxes they will pay so let's say someone makes five thousand dollars in income how much taxes would they pay well the first ten thousand dollars you pay no taxes so they pay zero dollars in taxes let's say someone has $15,000 $15,000 in income how much taxes would they pay will they pay zero percent on the first $10,000 so would be zero percent times $10,000 times 10,000 dollars and then the next five thousand so they're they're going to be right over here the next five thousand they're going to pay 20 percent so plus 20 percent times the next five thousand dollars the next five thousand dollars so they'll pay this is just zero the twenty percent of five thousand dollars they will pay one thousand dollars in taxes now the misconception that many people have is oh well fifteen thousand dollars puts me into this middle bracket so I'm gonna have to pay 20 percent on all 15 thousand dollars and that's not the way it works you only pay 20% for the increment that throws you in that bracket so just off for the five thousand dollars now let's do another example let's say that someone makes $100,000 let's say that someone makes $100,000 $100,000 how much taxes would they pay well it wouldn't be that they're in this last bracket so they paid 30 percent on their entire $100,000 they pay zero percent on the first ten thousand zero percent times ten I'll just write 10k for ten thousand then they'll pay they'll pay 20 percent on the next forty thousand this range right over here so plus 20 percent times the 40 thousand and then they only pay 30 percent on the increment of their income that is above this $50,000 threshold so then they will pay they will pay 30 percent they will pay 30 percent times the next fifty thousand dollars so ten thousand plus 40 plus fifty that was adds up to one hundred thousand dollars times fifty thousand dollars so this adds up to well this is nothing twenty percent of forty thousand dollars is going to be eight thousand eight thousand dollars and then 30 percent 30 percent of fifty thousand dollars is going to be fifteen thousand is going to be fifteen thousand dollars so in this situation the person will not pay thirty percent on the entire hundred thousand they will pay eight thousand plus fifteen thousand dollars which is equal to twenty three twenty three thousand dollars in income taxes