marginal rate
The rate charged on your next dollar — not on everything you earn.
The rate applying to the next dollar of income, as distinct from the average rate on all income.
What that means in practice
Being in a higher bracket does not mean your whole income is taxed at that rate. Only the part above the bracket line gets the higher rate. Everything below keeps its lower rate. The bracket change alone does not take away your raise. Changes to tax credits or benefits are separate and can affect what you keep.
The marginal rate describes the tax on additional income; the effective rate describes the average burden. A progressive income-tax bracket applies only to income within its band. The combined next-dollar rate also depends on payroll taxes and any applicable credit phase-outs. Social Security's wage ceiling can lower that combined rate as income rises. Compare both rates using the same taxes and income measure.
Questions people ask
Who decides this — the federal government or my state?
Both, separately. That is what makes income tax confusing. Congress sets the federal version. Every state that taxes income sets its own. So marginal rate can exist federally and not in your state. Or it can exist in both, with different numbers behind the same word.
Do I need to understand other terms before this one makes sense?
Usually, yes. marginal rate sits in a small cluster of related ideas rather than standing alone. The linked terms below are the ones it leans on. Reading it in isolation causes most of the confusion about it.
I have seen this called something else. Is it the same thing?
Probably yes. marginal rate travels under several names. Forms, employers and news coverage each tend to use a different one for the same rule. That is a real source of confusion, not a trivial one. The alternatives are listed on this page.
Why is this one harder to pin down than the others?
It has edges. marginal rate changes with circumstances. So the honest explanation runs longer than a definition usually would, and a short answer tends to be wrong in some case.
At which level of government is this determined?
Income tax concepts are defined independently at federal and state level. States may conform to the federal definition, conform selectively, or define their own; conformity is legislated and can be static (tied to a fixed date) or rolling. ⚠️ A federal change therefore propagates to some states automatically and to others only by subsequent state action.
What conceptual dependencies does this term carry?
This term has multiple conceptual dependencies, enumerated in the related-terms list. Definitions in tax law are frequently mutually referential — a provision's meaning depends on defined terms elsewhere in the code — so isolated reading commonly produces error.
What alternative designations refer to this concept?
This concept is referred to by multiple designations across statutory text, agency guidance, payroll documentation and common usage. The alternatives are enumerated on this page. ⚠️ Terminology divergence is a frequent source of error where a statutory term and its colloquial equivalent are not exactly co-extensive.
Why does this term require extended treatment?
This provision carries conditional application — its effect depends on filing status, income level, timing or jurisdiction — so a single-sentence definition necessarily omits determinative conditions. The extended treatment on this page states them explicitly rather than compressing them away.