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The marginal tax rate is the tax rate applied to your last dollar of income.
In Depth
This rate determines how much tax you pay on any additional income you make, like a bonus or a raise. It's often higher than your average tax rate because of progressive tax systems, where higher income brackets are taxed at higher rates. Understanding your marginal tax rate is crucial for financial planning, as it impacts the net benefit of earning more money or taking new deductions.
Example
If your marginal tax rate is 22%, an extra $100 you earn will result in $22 going to taxes, leaving you with $78.