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Glossary Finance

Marginal tax rate

The marginal tax rate is the rate applied to the next dollar of income, as opposed to the average rate across all your income.

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In more detail

In a bracket system each slice of income is taxed at its own rate, so earning more never reduces your take-home pay. With example brackets of 10%, 20% and 30%, $60,000 of income pays $13,000 in tax, an effective rate of 21.67%, even though the marginal rate is 30%.

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See also

  • Glossary Net pay
    Net pay, or take-home pay, is what you receive after taxes and deductions are subtracted from your gross pay.
  • Guide How Paychecks and Taxes Work
    Gross to net pay, marginal versus effective tax rates built slice by slice, self-employment tax, freelance rates, raises, commissions.
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