In personal finance, what tax rate applies to the next dollar of taxable income?

In personal finance, the tax rate that applies to the next dollar of taxable income is the marginal tax rate.

Tax systems with progressive brackets apply different rates to successive portions of taxable income. Moving into a higher bracket does not normally mean that all income is taxed at the higher rate; only the income within that bracket receives that rate. This distinction makes marginal tax rate useful when evaluating an additional raise, deduction, or taxable investment gain.

The effective tax rate is different. It represents total tax divided by a defined income measure, so it blends the rates applied to different portions of income. A taxpayer’s marginal rate can therefore be higher than the taxpayer’s effective average rate.

Actual calculations depend on the jurisdiction, filing status, deductions, credits, and type of income. Tax brackets can change through legislation, so a rate quoted for one year should not automatically be applied to another.