Marginal Tax Rate — Definition and What It Means for Your Income
The tax rate applied to your next dollar of income — also known as your tax bracket.
Marginal tax rate is the rate of tax applied to the last dollar of income earned. The U.S. uses a progressive system with multiple brackets — income is taxed in layers, with each layer taxed at its corresponding bracket rate.
Why it matters
Understanding marginal tax rate helps evaluate the real impact of a raise or bonus — only the income above your current bracket threshold is taxed at the higher rate.
Example
If you're in the 22% bracket and receive a $5,000 raise that doesn't push you into the 24% bracket, that raise is taxed at 22%, not your entire income.
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Marginal Tax Rate — FAQ
Does a raise push all my income into a higher bracket?
No. Only the portion of income above the bracket threshold is taxed at the higher rate — this is how progressive tax systems work.