To calculate your marginal tax rate, follow these steps:

1. Determine Your Taxable Income: This is your gross income minus any deductions or exemptions.
2. Refer to the Tax Brackets: Find the current tax brackets for your filing status (single, married filing jointly, married filing separately, head of household) for the relevant tax year.
3. Identify the Bracket of Your Income: See which tax bracket your taxable income falls into and find the corresponding tax rate.

Example

For example, if you are a single filer in 2023 with a taxable income of $70,000, the tax brackets might look something like this:

• 10% on income up to $10,275
• 12% on income from $10,276 to $41,775
• 22% on income from $41,776 to $89,075

In this case, your last dollar of income (the portion of your income that brings you from $41,776 to $70,000) would be taxed at the 22% rate. Therefore, your marginal tax rate would be 22%.

Key Points

• Marginal Tax Rate: This is not the rate applied to your entire income; it is the rate applied to the highest portion of your income.
• Effective Tax Rate: This is the average tax rate you'd effectively pay on your total income, which is usually lower than your marginal tax rate because your initial income is taxed at lower rates.

 

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