# marginal tax rate

(redirected from Income Tax Brackets)

## Marginal tax rate

The tax rate that would have to be paid on any additional dollars of taxable income earned.

## Marginal Tax Rate

A percentage of one's income that one must pay in taxes. Marginal tax rates vary according to income levels. One who makes \$100,000 per year has a higher marginal tax rate than one who makes \$25,000. However, the marginal tax rate does not increase for one's entire income, merely each dollar over a certain threshold. Suppose one pays 10% of one's income up to \$25,000, and 20% thereafter. The taxpayer making \$25,001 does not suddenly have to pay 20% of his/her entire income, only on the one dollar over \$25,000. That is, he/she owes 10% of \$25,000 (\$2,500) and 20% of the \$1 over that (or \$0.20). All things being equal, this taxpayer owes \$2,500.20 in taxes.

## marginal tax rate

The percentage of extra income received that must be paid in taxes. It is crucial for an investor to know his or her marginal tax rate in order to make intelligent investment decisions. For example, a decision whether or not to purchase municipal bonds is primarily a function of the investor's marginal tax rate. Also called tax bracket. See also progressive tax.
How to calculate your marginal tax rate and how to use that rate for making sound investment decisions.

Taxes are determined by calculations based on taxable income. Tax rates (or brackets) start at 10%, rising as high as 39.1% currently. Taxable income is broken down into certain levels, each to which a tax bracket applies. The highest bracket relative to taxable income is called your marginal tax rate. Each additional dollar of income or deduction increases or reduces tax by the percentage determined to be your marginal tax bracket. Use the calculations in investment decisions by comparing aftertax returns to tax-free securities or to growth securities that might be held until retirement, when tax brackets may be lower.

Jeffrey S. Levine, CPA, MST, Alkon & Levine, PC, Newton, MA

## Marginal tax rate.

Because the US income tax system is progressive, your tax rate rises as your taxable income rises through two or more tax brackets.

Your marginal tax rate is the rate you pay on the taxable income that falls into the highest bracket you reach: 10%, 15%, 25%, 28%, 33%, or 35%.

For instance, if you have a taxable income that falls into three brackets, you would pay at the 10% rate on the first portion, the 15% rate on the next portion, and the 25% federal tax rate on only the third portion. Your marginal rate would be 25%.

However, your marginal tax rate is higher than your effective tax rate, which is the average rate you pay on your combined taxable income. That's because you're only paying tax at your marginal, or maximum, rate on the top portion of your income.

Keep in mind that your marginal tax rate applies only to tax on ordinary income and does not take into account other tax liabilities -- such as realized long-term capital gains, which are taxed at your long capital gains rate, or tax credits for which you may be eligible, which may reduce the actual tax you pay.

## marginal tax rate

the fraction of the last pound of a person's income that is paid in TAX. High marginal tax rate may act as a disincentive to working longer hours when the incremental DISPOSABLE INCOME from such extra effort is small. See LAFFER CURVE, POVERTY TRAP.

## marginal tax rate

The percentage of income that must be paid to the IRS for a particular range of incomes, called tax brackets.As one's income increases, the marginal tax rate increases but only for that portion of one's income within the higher bracket.Portions of income within the lower brackets are taxed at the lower marginal tax rates.
References in periodicals archive ?
While TRAIN would increase the take-home pay of middle-class workers due to the overhauling of income tax brackets, ACT Teachers Party-list Rep.
Reducing the number of individual income tax brackets from seven to four: 12 percent, 25 percent, 35 percent and 39.
Capital gains taxes, which are currently tied to income tax brackets, are not mentioned--leading to the assumption that the current rates (0%, 15% and 20%) will remain untouched.
We have been advocating the reform of our income tax brackets and rates for several years now to put more money in people's pockets," said Senator Sonny Angara, chairman of the Senate ways and means committee.
The plan included a reduction in the number of income tax brackets from seven to three, cutting the corporate tax rate from 25 percent to 15 percent and instituting a one-time tax on corporations' overseas interests.
WASHINGTON, April 26 (KUNA) -- US President Donald Trump's Administration on Wednesday proposed "the biggest tax cut in history" in a plan that would reduce the number of individual US income tax brackets to three - 10 percent, 25 percent and 35 percent - and lower to 15 percent the business tax rate.
The income tax brackets for trusts are much smaller than those for individuals, so that higher tax brackets are reached more quickly.
Senator Juan Edgardo "Sonny" Angara yesterday warned government of pushing through with increasing government workers' salaries without adjusting the income tax brackets of workers.
Personal income taxes will be raised by one per cent for every income bracket except for the lowest, but Moody's points out that this might not have a very significant impact: "since personal income tax brackets will be lowered and permissible medical credits increased to account for fiscal drag, or the impact of past inflation pushing individuals into higher tax brackets, the revenue increase from income taxes will be zero in net terms.
One especially useful tax planning strategy for trustees of irrevocable trusts is to make distributions to trust beneficiaries who are in lower income tax brackets.
The House plenum passed an amendment on Thursday that exempts widow's pensions from income tax brackets so they can be taxed separately.

Site: Follow: Share:
Open / Close