GLOSSARY · TAX & ESTATE

Marginal tax rate

The rate of tax on your next dollar of income, set by the bracket your taxable income reaches. Only the income inside each bracket is taxed at that bracket's rate, so your effective rate, total tax divided by income, is always lower than your top bracket. A raise is taxed at the marginal rate and never reduces take-home pay.

Also called: tax bracket, marginal vs effective rate, top bracket, marginal rate, top tax bracket

FORMULA

Effective rate = total tax ÷ income; marginal rate = rate of the bracket your last dollar falls in

COMPUTE IT WITH YOUR NUMBERS

Tax bracket calculator →What federal tax do I owe and what are my marginal/effective rates?Raise after tax and years-sooner-to-FI →What is a raise worth after tax over my career, and how many years sooner does it get me to FI?

LEARN IT PROPERLY

CHAPTER · ARRIVING AND WORKING ON A VISA · FOUNDATIONSYour Paycheck: Withholding and the W-4 for Nonresidents CHAPTER · INCOME FUNDAMENTALS · FOUNDATIONSThe Three Kinds of Income

SOURCES

Federal income tax rates and brackets. Internal Revenue Service.
Rev. Proc. 2025-32, 2026 inflation-adjusted tax items. Internal Revenue Service.

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