## What is a 'Marginal Tax Rate'

A marginal tax rate is the amount of tax paid on an additional dollar of income. The marginal tax rate for an individual will increase as income rises. This method of taxation aims to fairly tax individuals based upon their earnings, with low-income earners being taxed at a lower rate than higher income earners.

Next Up

## BREAKING DOWN 'Marginal Tax Rate'

Under a marginal tax rate, taxÂ payers are most often divided into tax brackets or ranges, which determine the rate applied to the taxable income of the tax filer. As income increases, what is earned will be taxed at a higher rate than the first dollar earned. While many believe this is the most equitable method of taxation, many others believe this discourages business investment by removing the incentive to work harder.

## Marginal Tax Rates and Example

For the 2016 tax year (taxes due in 2017), in the United States, there are seven different marginal tax rates based on an individual's income. They are 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. Individuals who make the lowest amount of income are placed into the lowest marginal tax rate bracket, while higher earning individuals are placed into higher marginal rate tax brackets. However, the marginal tax bracket in which an individual falls does not determine how the entire income is taxed. Instead, income taxes are assessed on a progressive level. Each bracket has a range of income values that are taxed at a particular rate. For example, in 2016, for a single taxpayer, the marginal tax rates have the following income ranges:

10% Bracket: \$0 to \$9,275

15% Bracket: \$9,275 to \$37,650

25% Bracket: \$37,650 to \$91,150

28% Bracket: \$91,150 to \$190,150

33% Bracket: \$190,150 to \$413,350

35% Bracket: \$413,350 to \$415,050

39.6% Bracket: \$415,050+

If an individual taxpayer earned \$150,000 in income, they would owe the following income taxes, as shown below:

10% Bracket: (\$9,275 - \$0) x 10% = \$927.50

15% Bracket: (\$37,650 - \$9,275) x 15% = \$4,256.25

25% Bracket: (\$91,150 - \$37,650) x 25% = \$13,375

28% Bracket: (\$150,000 - \$91,150) x 28% = \$16,478

33% Bracket: Not applicable

35% Bracket: Not applicable

39.6% Bracket: Not applicable

Totaling these up, the entire tax liability for this individual would be \$35,036.75. Though the actual marginal tax rate brackets remain constant regardless of a person's filing status, the dollar ranges at which income is taxed at each rate can change depending on whether the filer is a single person, married joint filer or head of household filer.

In October 2016, the IRS released the 2017 Federal tax rates for taxes due in April 2018. To see those new rates, see the IRS's website and to learn more about how the marginal tax rate system works, read Can moving to a higher [tax bracket cause me to have a lower net income?

RELATED TERMS
1. ### Tax Bracket

The rate at which an individual is taxed. Tax brackets are set ...
2. ### Federal Income Tax

A federal income tax is levied by the United States Internal ...
3. ### Tax Rate

A tax rate is the percentage at which an individual or corporation ...
4. ### Bracket Creep

A situation where inflation pushes income into higher tax brackets. ...
5. ### Vertical Equity

A method of collecting income tax in which the taxes paid increase ...
6. ### Tax Indexing

The adjustment of the various rates of taxation done in response ...
Related Articles
1. Taxes

### Breaking Down Taxes For Different Income Brackets

Here is a useful rundown of how much you will pay in taxes based on your income.
2. Taxes

### How Trumpâ€™s Proposals Will Impact Your Taxes

How Trump's proposed tax changes could affect your taxes depends on your current tax bracket.
3. Managing Wealth

### How Trump Tax Plans Will Aid Wealth Building for the 1%

President-elect Trump's proposed tax plan includes tax breaks that may offer some generous benefits to higher-income earners.
4. Taxes

### Why America's Taxes Are Too Low

The solution to America's economic woes may not be in lowering taxes further, but may, in fact, lie in increasing them.
5. Taxes

### Anticipating Trump: How to Adjust Tax Planning Now

President-elect Trump's proposed tax plan means your tax situation could change next year. What to do now.
6. Taxes

### Comparing Long-Term vs. Short-Term Capital Gain Tax Rates

Learn about the difference between short- and long-term capital gains and how the duration of your investment can impact your tax liability.
7. Taxes

8. Taxes

### Who Would Trump's Tax Plan Hit the Hardest? Single Parents

Single parents can expect a tax increase under Trump's proposed tax plan.
9. Taxes

### Preparing for Potential Tax Policy Changes

Here is a comprehensive guide to tax planning in an environment where policies could dramatically change under new leadership in Washington.
RELATED FAQS
1. ### What's the difference between a tax rate and a tax bracket?

These two terms are often incorrectly used interchangeably. Find out the difference between your tax rate and your tax bracket. ... Read Answer >>
2. ### What is the highest marginal tax rate in the United States?

Find the highest marginal tax rate in the United States, calculate your taxable income, and maximize your returns by moving ... Read Answer >>
Hot Definitions
1. ### Notional Value

The total value of a leveraged position's assets. This term is commonly used in the options, futures and currency markets ...
2. ### Interest Expense

The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. ...
3. ### Call Option

An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
4. ### Pro-Rata

Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
5. ### Private Placement

The sale of securities to a relatively small number of select investors as a way of raising capital.
6. ### AAA

The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...