Marginal Tax Rate Calculator
Use this free marginal tax rate calculator to help you estimate the income tax you may pay the your highest level of income.
These calculators are provided for estimates only. Calculations will not affect SurePayroll account information. You must enter payroll data directly into your SurePayroll account to process it for an upcoming payroll period. Log into your account here or by clicking Sign In at the top of the page. Please direct specific SurePayroll questions to Customer Care after logging in.
Information and interactive calculators are made available to you only as self-help tools for your independent use and are not intended to provide legal, investment or tax advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.
What is Marginal Tax Rate
The marginal tax rate is the amount of income tax an individual pays on their highest dollar of income. It is part of a progressive tax system where income is taxed at different rates as it rises.
It means that different parts of your income are taxed at different rates versus at a flat rate.
Understanding the nuances can help improve financial understanding and planning.
How do Marginal Tax Rates Work?
If you visualize tax brackets as steps, you may start to see how income is segmented. As your income increases, you move up the next step, or tax bracket. At each step, you pay a higher rate on just the income above the previous step.
This incremental approach helps to make sure you pay the higher rate on the portion that exceeds each bracket’s threshold.
Tax Brackets Explained
Tax brackets are levels of income for which different federal income tax rates apply. Each bracket has a minimum and a maximum income level, with taxes applied incrementally. For example, if a bracket covers income from $10,000 to $20,000, only income in that range is taxed at that bracket’s rate.
Understanding these federal income tax rates and brackets can help you anticipate tax obligations as your income increases.
If you have questions about your federal, state, or local income tax obligations, it’s best to consult with a financial professional.
Benefits of Using a Marginal Tax Rate Calculator
If you don’t want to calculate your marginal tax rate manually, you can use a marginal tax calculator to get an estimate. By inputting your income, filing status, and dependents, you can get a quick estimate of your federal income tax liability. This can be especially helpful for quickly estimating potential tax liabilities.
Key Factors that Affect Your Marginal Tax Rate
Some factors that could affect your marginal tax rate include:
- Filing Status. Whether you file single, married, or head of household may influence your tax bracket, which could affect your marginal tax rate. A head-of-household vs single calculator can help you evaluate which rate may be best for you.
- Taxable Income. Your tax bracket determines your marginal tax rate. Your taxable income determines your tax bracket.
- Deductions or Exemptions. Though they may not directly impact your marginal tax rate, deductions, and exemptions can reduce your taxable income, which then can affect your marginal tax rate.
Marginal Tax Rate Formula
Calculating your marginal rate formula involves identifying the tax bracket for your income level. You can run a simple estimated calculation using the formula below.
- Determine Your Taxable Income. This is your total income minus any deductions or exemptions.
- Identify Your Tax Bracket. Use the IRS tax bracket chart to find the range for your income.
- Apply the Marginal Tax Rate. The tax rate for the bracket of the last dollar you earn is your marginal tax rate.
How to Calculate Marginal Tax Rate
If you are single and your taxable income is $60,000, here’s how you might estimate your marginal tax rate.
Please note, that the following example uses simplified figures for illustration only. Make sure to check the IRS Tax Bracket table for specific rates for each income level.
- The first $10,000 is taxed at 10%
- The next $30,000 is taxed at 12%
- The remaining $20,000 is taxed at 22%
Even though some of your income is taxed at lower rates, your marginal tax rate is 22%.
Effective Rate Vs Marginal Tax Rate
The marginal tax rate refers to the rate applied to your last dollar of income.
The effective tax rate is the average rate you pay on all your income.
You can estimate your effective tax rate using an effective tax rate calculator.
Or you can figure it out manually by dividing your total tax paid by your total income. This calculation can provide a clearer picture of your actual tax burden. You would likely want to use your effective tax rate for your budgeting and financial planning.
The calculation for the hypothetical example above would look like this:
First $10,000 x 10% = $1,000
Next $30,000 x 12% = $3,600
Remaining $20,000 x 22% = $4,400
Based on this example the estimate of your total tax owed would be $9,000.
Then you would divide your estimated total tax owed by your estimated taxable income. In this example $9,000 / $60,0000 = 15%
That would make your estimated effective tax rate 15%.
Let's answer some of your questions
Tax brackets form the foundation of the U.S. tax system. As income increases, it moves into higher tax brackets where it is taxed at higher rates.
A 22% marginal tax bracket is a very specific range of taxable income. The income for that marginal tax rate will vary depending on filing status and other variables.
It’s difficult to generalize what someone’s marginal tax rate will be in retirement. It will depend on many factors, including taxable and non-taxable income sources, overall income, filing status, and deductions and exemptions.
Tax deductions may not directly impact your marginal rate. They may reduce your taxable income, which then can affect your marginal tax rate.
