# Marginal Tax Rate Definition, Ranges, & Examples

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## What Is Marginal Tax Rate?

The marginal tax rate is the tax rate you pay on an additional dollar of income. In the United States, the federal marginal tax rate for individuals increases as income rises. This method of taxation, known as progressive taxation, aims to tax individuals based upon their earnings, with low-income earners being taxed at a lower rate than higher-income earners.

### Key Takeaways

• The marginal tax rate is the tax rate paid on the next dollar of income.
• Under the progressive income tax method used for federal income tax in the United States, the marginal tax rate increases as income increases.
• Marginal tax rates are separated by income levels into seven tax brackets.

## Understanding Marginal Tax Rate

Under a marginal tax rate, taxpayers are most often divided into tax brackets or ranges, which determine the rate applied to the taxable income of the tax filer. As income increases, the last dollar earned will be taxed at a higher rate than the first dollar earned. In other words, the first dollar earned will be taxed at the rate for the lowest tax bracket, the last dollar earned will be taxed at the rate of the highest bracket for that total income, and all the money in between is taxed at the rate for the range into which it falls.

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Marginal tax rates can be changed by new tax laws. The current marginal tax rates went into effect in the United States as of Jan. 1, 2018, with the passage of the Tax Cuts and Jobs Act (TCJA). Under the previous law, the seven brackets were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The new plan, signed into law in Dec. 2017, keeps the seven bracket structure. However, adjustments were made to the tax rates and income levels. Under the TCJA, the new rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

The other type of tax rate is the flat tax rate, which a few states implement for state income tax. Under this system of taxation, people aren’t taxed on a scale (like the marginal tax rate), but rather, flat across the board. In other words, everyone is charged the same rate, regardless of income level. Most systems that use a flat tax rate do not allow for deductions and are seen in countries with a rising economy. Those who support this system of taxation describe it as fair, as it taxes all people and businesses at the same rate. Those who oppose it believe that it results in high-income taxpayers paying less than they should for an equitable society.

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## Marginal Tax Rate Example

The table below shows the rates and income levels for three types of filer in 2021: single, married filing jointly, and heads of household.﻿﻿

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