What is Marginal Tax?
Marginal tax rates are used because they are considered to be the most fair; low income earners are taxed at a lower rate than high income earners. This is achieved by setting several tax brackets which earners’ incomes fall into. In the US, these brackets are 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The amount of salary the earner has in each bracket determines their taxable income:
10% - $0 to $9,275
15% - $9,275 to $37,650
25% - $37,650 to $91,150
28% - $91,150 to $190,150
33% - $190,150 to $413,350
35% - $413,350 to $415,050
39.6% - $415,050+
However, the tax bracket does not determine the percentage of tax taken from the entire income. Instead, the income is taxed progressively. For example, a single person earning $100,000 per annum would be taxed as follows:
10% bracket: ($9,275 - $0) x 10% = $927.50
15% bracket: ($37,650 - $9,275) x 15% = $4,256.25
25% bracket: ($91,150 - $37,650) x 25% = $13,375
28% bracket: ($100,000 - $91,150) x 28% = $2,478
33%, 35% and 39.6% brackets are not applicable as the salary does not reach them.
Total tax: $927.50 + $4,256.25 + $13,375 + $2,478 = $21,036.75 (21% average)
The dollar ranges are different depending on whether the person is filing as single, married, or head of household, while the tax brackets remain the same regardless.
How To Use The Marginal Tax Calculator
Not sure where to start? Let us help you:
- Select your filing status from the drop-down menu
- Specify whether you are a dependent from the second drop-down menu
- Use the slider or type in the box your annual wage, including all salaries, tips and bonuses
- Add your deductions and dependents – if you aren’t sure what to include, click the name for more information
- Click View Report to see a breakdown of your taxes.
Who is this Calculator for?
This calculator is most useful if you:
- Would like to quickly ascertain how much marginal tax you will need to pay
- Are interested in the effect of different salaries on overall tax rate
- Want to know your overall average rate of taxation
Is Marginal Tax Rate really fair?
Many people think so, as it encourages a system where people are not taxed more than they can afford. However there are schools of thought which insist that this method of taxation can decrease levels of entrepreneurship and motivation by not incentivizing high earnings.
Will earning more cause me to take home less?
A common concern, but fortunately not based in truth. The marginal tax system protects against this, as you are only taxed the higher percentage on the amount of money you earn above that percentage’s threshold. The example above should explain this clearly in more detail.