 This is Waylon and this is how we calculate personal income tax. I'm going to use Canadian federal tax rates for 2013 Personal income tax rates are called progressive. That means that there are a number of different income brackets And for each bracket, there is a separate tax rate and the higher the bracket the higher the tax rate Hence the word progressive So let's do a sample calculation Let's take someone who is making a hundred and fifty thousand dollars of taxable income and this is for the year 2013 So imagine a layer cake with each layer being taxed at a different rate. The bottom layer here is The income from zero to forty three thousand and five hundred sixty one dollars That layer of income is taxed a federal rate of fifteen percent, which gives us six thousand five hundred thirty four dollars of tax The next layer, which brings us up to eighty seven thousand one hundred and twenty three dollars is Taxed at a rate of twenty two percent, which gives us tax of nine thousand five hundred eighty four dollars Our third layer of the cake brings us up to a hundred thirty five thousand and fifty four dollars Which is taxed at a rate of twenty six percent? Which gives us tax of twelve thousand four hundred sixty two two dollars for that layer And our last and fourth layer of our cake, which brings us up to the hundred fifty thousand dollars of taxable income is Taxed at a rate of twenty nine percent, which gives us tax of four thousand three hundred thirty four dollars So when we add up the taxes for all four of those layers together That gives us total federal tax payable before applying any tax credits of thirty two thousand nine hundred and fourteen dollars