Marginal Tax Rate
The tax rate applied to the last dollar of income earned.
The marginal tax rate is the percentage of tax applied to the next unit of income. In a progressive tax system, your marginal rate is the highest bracket your income falls into. This is different from your effective (average) tax rate, which is the total tax paid divided by total income. Understanding marginal rates is crucial for financial planning and investment decisions.
Examples
- If you earn $50,000 in the US, your marginal rate is 22%, but your effective rate is lower.
- A UK taxpayer earning £60,000 has a marginal rate of 40%.