Incremental Tax

DEFINITION of 'Incremental Tax'

A tax that increases in increments based on income levels. Incremental taxes must be considered when evaluating new investment opportunities, especially for individuals or companies in the upper end of their current tax brackets.

BREAKING DOWN 'Incremental Tax'

Incremental taxes may turn a seemingly profitable investment into a bad decision. For example, let's say an investor earns just below the maximum earnings allowable in his or her current tax bracket. A new investment opportunity is offered, which promises to earn a significant return. The investor must weigh the additional revenues against the incremental taxes associated with moving into the higher tax bracket. He or she may find that paying the higher tax rate on all or part of his or her income does not warrant investing in the profitable project.

RELATED TERMS
  1. Industrial Park

    A portion of a city that is zoned for industrial use (as opposed ...
  2. Regressive Tax

    A tax that takes a larger percentage from low-income people than ...
  3. Income Tax

    A tax that governments impose on financial income generated by ...
  4. Tax Bracket

    The rate at which an individual is taxed. Tax brackets are set ...
  5. Progressive Tax

    A tax that takes a larger percentage from the income of high-income ...
  6. After-Tax Income

    The amount of money that an individual or company has left over ...
Related Articles
  1. Taxes

    How to Cut Your Alternative Minimum Tax

    Should you worry about the AMT? Even if you're subject to it, there are exemptions and strategies for reducing your tax bill.
  2. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  3. Savings

    Tax-Saving Tips For Canadian Taxpayers

    Find out how to get a bigger return.
  4. Taxes

    Why People Renounce Their U.S Citizenship

    This year, the highest number of Americans ever took the irrevocable step of giving up their citizenship. Here's why.
  5. Investing News

    Obama Floats $10 a Barrel Oil Tax

    President Obama intends to propose a $10 a barrel tax on oil; consumers might have to cough up 25 cents more per gallon.
  6. Taxes

    Taxes: H&R Block Vs. TurboTax Vs. Jackson Hewitt

    There are more and more tax services to help ease the pain of filing income taxes. Here's our take on three of the biggest.
  7. Taxes

    Confused About Estimated Tax Deadlines for 2016?

    If you run a business or have investment income, pay attention to this year's estimated tax deadlines. Here are the details, and what's new for 2016.
  8. Retirement

    Retirement Plan Tax Prep Checklist

    Here's a list of items you need to have in order by tax time, including paying attention to those pesky required minimum distributions.
  9. Markets

    The (Expected) Market Impact of the 2016 Election

    With primary season upon us, investor attention is beginning to turn to the upcoming U.S. presidential election.
  10. Fundamental Analysis

    5 Economic Changes to Expect if a Republican Wins in 2016

    Discover the five most likely economic changes the United States can expect if a Republican wins the presidential election in 2016.
RELATED FAQS
  1. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Full Answer >>
  2. When should my tax refund arrive?

    More than 90% of income-tax refunds arrive in less than three weeks, according to the Internal Revenue Service (IRS). However, ... Read Full Answer >>
  3. How do I file taxes for income from foreign sources?

    If you are a U.S. citizen or resident alien, your income (except for amounts exempt under federal law), including that which ... Read Full Answer >>
  4. Are Flexible Spending Account (FSA) items tax deductible?

    Flexible Spending Accounts (FSAs) are employer-sponsored, tax-favored savings plans expressly for the future reimbursement ... Read Full Answer >>
  5. How Long Should I Keep My Tax Records?

    The Internal Revenue Service (IRS) has some hard and fast rules regarding how long taxpayers should keep their tax records. As ... Read Full Answer >>
  6. Do tax brackets include Social Security?

    A portion of your Social Security benefits may be subject to federal taxation using tax brackets. Your tax bracket is determined ... Read Full Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  3. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  4. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  5. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  6. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
Trading Center