Marginal Tax Rate

AAA

DEFINITION of 'Marginal Tax Rate'

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.

INVESTOPEDIA EXPLAINS 'Marginal Tax Rate'

Under a marginal tax rate, tax payers are most often divided into tax brackets or ranges, which determine which rate taxable income is taxed at. As income increases, what is earned will be taxed at a higher rate than your 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.

To learn more about how the marginal tax rate system works, check out Can moving to a higher tax bracket cause me to have a lower net income? 

VIDEO

RELATED TERMS
  1. Income

    Money that an individual or business receives in exchange for ...
  2. James A. Mirrlees

    An economist who won the Nobel Memorial Prize in Economics in ...
  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. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  6. Tax Shield

    A reduction in taxable income for an individual or corporation ...
RELATED FAQS
  1. Is the marginal tax rate a progressive tax?

    The marginal tax rate is a type of progressive tax system that imposes a higher income tax rate on people with higher incomes, ... Read Full Answer >>
  2. What's the difference between the marginal tax rate system and a flat tax?

    In modern economics, there are two main types of tax systems: marginal tax rate and flat tax rate. Under a marginal system, ... Read Full Answer >>
  3. What is the highest marginal tax rate in the United States?

    In a marginal tax rate system, such as the one found in the United States, the more income one makes, the more one is expected ... Read Full Answer >>
  4. Are marginal tax rate schemes more fair than flat taxes?

    The proper framing of the question should be, "To whom is a marginal tax rate fairer," as progressive, marginal, and flat ... Read Full Answer >>
  5. Can you calculate the marginal tax rate in Excel?

    Marginal tax rates are higher for higher-income individuals. Accurate information about current tax brackets is needed to ... Read Full Answer >>
Related Articles
  1. Personal Finance

    What's a Marginal Tax Rate?

    The marginal tax rate is based on a progressive tax system, where tax rates for an individual will increase as income rises. This method of taxation aims to fairly tax individuals based upon ...
  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. Retirement

    Retirement Living: Renting Vs. Home Ownership

    Here are three simple questions you should consider when weighing this decision.
  4. Taxes

    Next Season, File Taxes On Your Own

    Master these fundamentals and you'll be doing your own taxes with minimal stress.
  5. Retirement

    10 Bank-Breaking Money Myths

    Just because a belief is common, doesn't mean that it's true. Here we separate fact from fiction.
  6. Taxes

    How Your Tax Rate Is Determined

    Feel like the government always has its hand in your pocket? Learn the theory behind how it decides how much to take.
  7. Retirement

    The Simple Tax Math Of Roth Conversions

    Roth conversions will be available to affluent taxpayers in 2010. Will you benefit?
  8. Economics

    Does A Junk Rating Reflect Russia's Fundamentals?

    Moody’s, like other credit rating agencies, has downgraded Russia’s sovereign debt rating to non-investment grade, but does this reflect Russia's economy?
  9. Investing

    What Has Been Groupon’s Growth Strategy?

    Groupon established a strategy with efforts to become a broader force in the e-commerce world and to expand more strongly into international markets.
  10. Economics

    The Impact Of Ending The US Embargo On Cuba

    Many argue that ending the US embargo on Cuba will not only make US consumers happy, but also help the US economy and bring more freedoms to Cuba.

You May Also Like

Hot Definitions
  1. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  2. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  3. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  4. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  5. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center