A marginal tax rate is a rate incurred on each additional dollar of income. Marginal tax rates are higher for higher-income individuals, as this method of taxation looks to tax individuals based upon their earnings.
To properly estimate U.S. marginal tax rates, access to accurate information about current tax brackets is needed to complete the tax table in Microsoft Excel. This information is available from the Internal Revenue Service (IRS) and will be used in the computations.
Calculating Marginal Tax Rates in Excel
1. Create a Spreadsheet
To create an Excel spreadsheet that calculates the marginal tax rate, begin by opening a spreadsheet and create columns with the titles "Taxable Income," "Marginal Tax Rate," and "Base Tax."
Under the first column, place the year's income maximums for each marginal tax rate. The column should start at the lowest tax bracket and end at the highest bracket. Under the second column, list each tax rate, starting with the lowest. The final column should have minimum tax values for each tax bracket. After filling in the values, it's time to use a formula to calculate the appropriate values.
2. Use This Formula
To create the formula, choose an income value to apply the calculation to and enter it in cell A11. Under the second column and in the same row as the value that was just entered, type "=VLOOKUP(A11,A3:C8,2)" in cell C11, and save your spreadsheet.
This calculation will now apply to values entered in the first two columns in row 11, 12, 13, and so on through your spreadsheet. Note that these calculations only provide a marginal tax rate applied to income and do not factor in individual tax circumstances, such as deductions and taxable income limits.
These values result in an approximate tax rate that provides a starting point for estimating personal taxes.