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  • Because the US income tax system is progressive, your tax rate rises as your taxable income rises through two or more tax brackets.

    Your marginal tax rate is the rate you pay on the taxable income that falls into the highest bracket you reach: 10%, 15%, 25%, 28%, 33%, or 35%.

    For instance, if you have a taxable income that falls into three brackets, your would pay at the 10% rate on the first portion, the 15% rate on the next portion, and the 25% federal tax on only the third portion. Your marginal rate would be 25%.

    However, your marginal tax rate is higher than your effective tax rate, which is the average rate you pay on your combined taxable income. That's because you're only paying tax at your marginal, or maximum, rate on the top portion of your income.

    Keep in mind that your marginal tax rate only applies to tax on ordinary income and does not take into account other tax liabilities - such as realized long-term capital gains which are taxed at your long capital gains rate - or tax credits for which you may be eligible, which may reduce the actual tax you pay.

  • Browse Related Terms: Effective tax rate, flat tax, Marginal tax rate, Private letter ruling, Progressive tax, Regressive tax, Tax bracket