marginal tax rate

(redirected from Marginal Tax Brackets)

Marginal tax rate

The tax rate that would have to be paid on any additional dollars of taxable income earned.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

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.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005

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.
The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
References in periodicals archive ?
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Under current law, the tax savings from the personal exemption and the additional standard deduction increases as a taxpayer's income rises and he or she climbs into higher marginal tax brackets. For example, for a family of four in the 15 percent marginal tax bracket, the tax savings from the personal exemption are $2,430, or $607.50 per exemption.
Progressive marginal tax brackets add, at most, a few simple calculations beyond the flat tax Will favors.
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Since distributions from IRAs are as ordinary income, it's important to understand the marginal tax brackets, as well as tax deductions.
Thus, the policy solution appears obvious: The thresholds for determining how much of a married couple's Social Security benefits are included in AGI should be double the amounts of the thresholds applicable to single individuals, similar to the current treatment of the standard deduction amounts and marginal tax brackets. Alternatively, the threshold amounts applicable to single individuals could be applied to each of the married taxpayers separately in order to determine the amount of Social Security benefits to be included.
* The AMT cost of the ISO adjustment is most egregious for middle-income taxpayers in the 28%-33% marginal tax brackets. If possible, F should exercise her ISOs in a year in which she can avoid or mitigate the AMT cost.
The tables below show the marginal tax brackets and the standard deduction amounts for certain taxpayers in 2008.