Marginal Tax Rate

The marginal tax rate is the percentage of tax you pay on your next dollar of income. As your income increases and moves into higher tax brackets, only the income within each bracket is taxed at that specific rate. For example, if your income pushes you into a higher bracket, only the additional earnings are taxed at the higher rate, not your entire income. It helps to understand how incremental income is taxed differently depending on your total earnings, rather than a flat rate applied to all income.