What is Marginal tax rate?

Your marginal tax rate is the rate you pay on your last dollar of income. It determines how much tax you’d owe on extra earnings. In the United States, federal income taxes are progressive, meaning income is divided into segments, and each segment is taxed at an increasing rate. A taxpayer's marginal tax rate corresponds to the highest tax bracket their income reaches, representing the rate they would pay on any additional income earned.

For example, if a single filer's taxable income reaches the 22% tax bracket in 2026, their marginal tax rate is 22%. Any additional dollar they earn—such as a work bonus or short-term capital gain—will be taxed at 22%, until their income reaches the threshold for the 24% bracket. Conversely, any tax deduction they claim will save them 22 cents for every dollar deducted.

Your marginal tax rate helps you evaluate financial decisions, such as working overtime, investing in taxable vs. tax-exempt bonds, or choosing between a pre-tax traditional 401(k) and an after-tax Roth 401(k). Marginal tax rates only apply to taxable income, after deductions have been subtracted.