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? 

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. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  5. Tax Bracket

    The rate at which an individual is taxed. Tax brackets are set ...
  6. Tax Shield

    A reduction in taxable income for an individual or corporation ...
Related Articles
  1. Tax Tips For The Individual Investor
    Retirement

    Tax Tips For The Individual Investor

  2. Retirement Living: Renting Vs. Home ...
    Retirement

    Retirement Living: Renting Vs. Home ...

  3. Next Season, File Taxes On Your Own
    Taxes

    Next Season, File Taxes On Your Own

  4. 10 Bank-Breaking Money Myths
    Retirement

    10 Bank-Breaking Money Myths

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center