To calculate your marginal tax rate , follow these steps:
- Determine your taxable income : Add up all sources of income (salary, investments, etc.) and subtract any deductions or adjustments to get your taxable income.
- Identify your filing status : Your tax brackets depend on whether you file as single, married filing jointly, head of household, etc.
- Locate the tax brackets for the current tax year : Find the IRS tax brackets that correspond to your filing status and taxable income.
- Find the highest tax bracket your income falls into : Your marginal tax rate is the rate applied to the last dollar you earn, i.e., the highest bracket that includes part of your income.
- Calculate taxes owed per bracket : For each bracket up to your highest, multiply the portion of your income within that bracket by the bracket’s tax rate.
- Sum the taxes from all brackets to find your total tax liability.
Example (2024 single filer with $50,000 taxable income):
- 10% on first $11,600 = $1,160
- 12% on next $35,550 ($11,601 to $47,150) = $4,266
- 22% on remaining $2,850 ($47,151 to $50,000) = $627
Total tax = $1,160 + $4,266 + $627 = $6,053
The marginal tax rate here is 22%, because that’s the rate applied to the
last dollar earned
Key points:
- The marginal tax rate applies only to the last portion of income within the highest bracket you reach, not your entire income.
- Your effective tax rate (average rate) is total taxes divided by total taxable income, usually lower than the marginal rate.
- Marginal tax rates are progressive, meaning income is taxed at increasing rates as it moves into higher brackets
This method helps you understand how much tax you pay on additional income and plan financial decisions accordingly.
