MARGINAL TAX RATE

Most think that marginal tax rate is synonymous with tax bracket. This may generally be true but as the tax brackets advance to higher rates so does the taxpayer’s income; as incomes increase, tax breaks begin to be reduced, phased out and in some cases totally eliminated. This effectively increases the marginal tax rate above the tax bracket. Knowing your marginal rate tells how much of each additional dollar will go to taxes or how much each additional dollar of deductions will reduce taxes. Also see “tax bracket.”