Marginal vs Effective Tax Rate

September 04, 2018

Not every dollar you earn is taxed equally. In the US, there are currently seven tax brackets, each of which taxes one band of your income. Here are the rates and brackets for each of the four primary filing statuses:

Marginal tax brackets

Marginal Tax Rate Single Married Filing Jointly Married Filing Separately Head of Household
10% $0 – $9,325 $0 – $18,650 $0 – $9,325 $0 – $13,350
15% $9,326 – $37,950 $18,651 – $75,900 $9,326 – $37,950 $13,351 – $50,800
25% $37,951 – $91,900 $75,901 – $153,100 $37,951 – $76,550 $50,801 – $131,200
28% $91,901 – $191,650 $153,101 – $233,350 $76,551 – $116,675 $131,201 – $212,500
33% $191,651 – $416,700 $233,351 – $416,700 $116,676 – $208,350 $212,501 – $416,700
35% $416,701 – $418,400 $416,701 – $470,700 $208,351 – $235,350 $416,701 – $444,550
39.6% $418,401+ $470,701+ $235,351+ $444,501+

Your marginal tax bracket is the percentage at which the last dollar you earn is taxed. So, if you're filing single and have $72,000 of taxable income, your marginal tax rate is 25%, as $72,000 falls within the 25% marginal tax bracket for single status filings.

Understanding the difference between marginal and effective tax rates can be a little hard when you first encounter the terms. Try out the effective tax rate calculator to get a feel for it.

Effective Tax Rate

Effective Tax Rate = Tax Paid/Income

Example

Let's walk through an example. Say you file with the following information:

Annual Taxable Income
Filing Status
Single

The table below shows the exact calculation that determines your effective tax rate.

Marginal RatexApplicable incomeApplicable Income=Amount of Tax Paid
10.00%x$9,325.00(dollars 1 to 9325)=$932.50
15.00%x$28,625.00(dollars 9326 to 37950)=$4,293.75
25.00%x$34,050.00(dollars 37951 to 72000)=$8,512.50
$13,738.75 total tax

You end up paying $13,738.75 of tax on $72,000.00 of income, or$13,738.75/$72,000.00=19.08% of your income. This rate is what is known as your effective tax rate. Your marginal tax rate is 25.00% (the highest tax bracket you reach).

Tax Bracket calculator

Use this graph to visualize the significant difference between marginal and effective tax rates.

Effective Tax Rate: 19.32%

Marginal Tax Rate: 25.00%
$200K$400K10%15%20%25%30%35%40%
Marginal Tax Rate
Effective Tax Rate

Adjust your numbers

Choose a Filing Status
Single

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