Marginal Tax Rate
The tax rate applied to your last (highest) dollar of taxable income. It indicates how much tax you would pay on an additional dollar of earnings.
Your marginal tax rate is the rate at which your next dollar of taxable income would be taxed. It corresponds to the highest tax bracket that applies to your income. For instance, if your taxable income puts you in the 22% bracket, your marginal rate is 22%.
The marginal rate is especially useful for financial planning decisions. When deciding whether to contribute to a pre-tax 401(k) versus a Roth 401(k), your marginal rate tells you the immediate tax savings of a pre-tax contribution. A $1,000 pre-tax contribution at a 22% marginal rate saves $220 in taxes now.
It is important not to confuse marginal rate with effective rate. Your marginal rate applies only to income at the top of your bracket, while your effective rate is the average rate across all your income. Most taxpayers have an effective rate significantly lower than their marginal rate due to the progressive bracket structure.
Related Terms
Tax Bracket
A range of income taxed at a specific rate. The US uses a progressive system with seven brackets ranging from 10% to 37% for 2025.
Effective Tax Rate
Your total federal income tax divided by your total income, expressed as a percentage. It represents the average rate at which your income is actually taxed.
Taxable Income
The portion of your income that is actually subject to federal income tax, calculated by subtracting the standard or itemized deduction from your AGI.
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Use our free tool to calculate your marginal tax rate and see how it affects your taxes.