egin{tabular}{lrlll} Marginal Tax Rate & multicolumn{1}{c}{ Income } & & multicolumn{1}{c}{ Tax } \ ( 10 % ) of & ( $ 9,875 ) & ( = ) & ( $ ) & 987.50 \ ( 12 % ) of & 30,250 & ( = ) & ( 3,630.00 ) \ ( 22 % ) of & 45,400 & ( = ) & ( 9,988.00 ) \ ( 24 % ) of & 77,775 & ( = ) & ( 18,666.00 ) \ ( 33 % ) of & 44,050 & ( = ) & ( 14,096.00 ) \ ( 35 % ) of & 311,050 & ( = ) & ( 108,867.50 ) \ ( 37 % ) of & 1,600 & ( = ) & 592.00 \ & ( $ 520,000 ) & & ( $ 156,827.00 ) end{tabular} Notice that the various marginal tax rates apply only to the income in that specific bracket. By adding up the taxes in each bracket, we get a total tax of ( $ 156,827 ). This represents only 30.2 percent of this individual's income. Hence, this person had a - Marginal tax rate of 37 percent. - Average (or nominal) tax rate of 30.2 percent.
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The marginal tax rate is the rate at which your last dollar of income is taxed. This system is progressive, meaning that as income increases, the tax rate on income in higher brackets also increases. However, not all income is taxed at the same rate due to these Show more…
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