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. Internal Revenue Service - IRS

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

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

    A reduction in taxable income for an individual or corporation ...
  6. Income Spreading

    A tax reduction strategy that is typically used by people with ...
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. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold ...
  2. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  3. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  4. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  5. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  6. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
Trading Center