Marginal tax rates

Marginal tax rates refer to the percentage of tax applied to your last dollar of income. In a progressive tax system, as your income increases, you are taxed at higher rates for the income that falls within specific ranges, or brackets. For example, if your income puts you in a higher tax bracket, only the income above a certain threshold is taxed at that higher rate, not your entire income. This structure ensures that individuals with higher earnings contribute a larger portion of their income in taxes, while those with lower earnings pay a smaller percentage.