Your marginal tax rate is the tax rate applied to your last (highest) dollar of taxable income. In a progressive tax system like the U.S. federal income tax, your marginal rate is determined by the tax bracket your top dollar of income falls into. It is not the rate applied to all your income.
Understanding the marginal rate is crucial because it directly affects the after-tax value of additional income. If your marginal rate is 22%, earning an extra $1,000 means keeping $780 after federal tax (before state tax and FICA). This applies to raises, bonuses, side income, and investment gains.
A common myth is that earning more can "push you into a higher bracket" and cost you money. This is false. Only the income above each bracket threshold is taxed at the higher rate. A raise always increases your take-home pay.
A single filer with $90,000 in taxable income has a marginal rate of 22% (the bracket covering $48,475 to $103,350). However, their effective rate is much lower because portions of income are taxed at 10% and 12% first:
| Bracket | Income Taxed | Tax |
|---|---|---|
| 10% | $11,925 | $1,193 |
| 12% | $36,550 | $4,386 |
| 22% | $41,525 | $9,136 |
| Total | $14,714 | |
Effective rate: $14,714 / $90,000 = 16.3%, well below the 22% marginal rate. Use the tax calculators to see both rates for your specific income and state.