NEW YORK (CNN/Money) - I've recently had an increase in earnings that will put me into a higher tax bracket. Does this mean that my entire salary will be taxed at the higher rate?

-- Jared Williams, Houston, Texas

Fortunately for everyone out there who's striving to earn more money to build more financial security for themselves and their families, the answer is no.

Uncle Sam does take a bigger share of your earnings when you climb into a higher tax bracket. But, mercifully, the increased levy doesn't apply to all of your income.

Basically, the U.S. has a system of graduated tax rates that you can think of like rungs on a ladder. Taxable income is first taxed at the rate applicable to the lowest rung on the ladder, which is 10 percent.

If you have taxable income above the maximum amount that falls into the 10 percent bracket, then the amount above that ceiling is then taxed at the next rate, which is 15 percent. If you then have taxable income above the limit for the 15 percent bracket, the amount in excess of the 15 percent ceiling is taxed at the next rate, which is 25 percent, and so on through the 28 percent and 33 percent rates.

Once you climb into the highest rate -- currently 35 percent -- then all the taxable income that falls into the 35 percent bracket is taxed at that rate.

The dollar amount of taxable income subject to these various rates depends on your filing status -- that is, whether you're filing as a single person, married couple or head of a household. (In some instances, it may pay for married couples to file separately).

Just to show how the system works, let's take the example of a married couple filing jointly with taxable income in 2004 of $400,000. Granted, that figure is way beyond the taxable income of the vast majority of U.S. couples, but I've purposely chosen a high amount so all the tax rates will come into play.

The table below shows how our hypothetical high earning couple's income would be taxed. The first $14,300 of taxable income would be subject to the 10 percent rate, the next $43,800 (the amount from $14,300 to $58,100) would be hit at the 15 percent rate, the next $59,150 (the amount from $58,100 to $117,250) would be taxed at the 25 percent rate, and so on.

Tax liability For a married couple with 2004 taxable income of $400,000 Tax rate  Applies to income from  Tax on income in that bracket  10%  $0 to $14,300  $1,430  15%  $14,300 to $58,100  $6,570  25%  $58,100 to $117,250  $14,788  28%  $117,250 to $178,650  $17,192  33%  $178,650 to $319,100  $46,349  35%  Over $319,100  $28,315    TOTAL TAX LIABILITY  $114,644

The total tax would be the sum of the amount taxed in each tax bracket, in this case $114,644. If every single dollar of our fictive couple's taxable income were taxed at their top rate of 35 percent, their tax liability would be $140,000, or $25,356 more.

That, essentially, is how the system works, although I've simplified it here because I don't want to put everyone to sleep with the tons of details and exceptions that make our tax system so complicated in the real world.

For example, I've been referring to "taxable income" here since these rates apply not to your gross earnings, but to income after various exemptions for dependents, deductions (either the standard deduction or itemized) and other items that lower your taxable income, such as contributions to a 401(k), traditional IRA or other tax-advantaged retirement savings plan.

Indeed, the various deductions, credits and other tax preferences are why many Americans who work but have low incomes pay no income tax at all. I've also limited our look to the rates and taxable incomes for married couples filing jointly.

If you'd like to see the tax rates and income levels that apply for single taxpayers and other filing statuses, as well as the estimated tax rates for 2005, you can click here.

So that, for better or worse, is how our system of graduated tax rates works. As your taxable income rises, you may move up into higher tax brackets, which subjects a portion of your income to higher rates and raises the average rate you pay on all of your income.

That said, I believe there's nothing wrong with trying to lower your taxable income by any legal means available to you. If you agree, I suggest that from time to time you check into our Tax Center, where you'll find the latest tax news as well as practical tips on how to shave your tax tab.

Walter Updegrave is a senior editor at MONEY Magazine and is the author of "We're Not in Kansas Anymore: Strategies for Retiring Rich in a Totally Changed World."