Marginal Tax Rate: What Is It and How Does It Affect Your Taxes
Your marginal tax rate is the highest tax rate you’ll pay on your taxable income. It’s based on the federal income tax bracket you're in, which depends on your taxable income and filing status. You might be able to lower your marginal tax rate if you can reduce your taxable income. You might also want to calculate your effective tax rate, which might give you a clearer picture of how much tax you’re paying relative to your income.
The One Big Beautiful Bill that passed includes permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct, makes cuts to energy credits passed under the Inflation Reduction Act, makes changes to taxes on tips and overtime for certain workers, reforms Medicaid, increases the Debt ceiling, and reforms Pell Grants and student loans. Updates to this article are in process. Check our One Big Beautiful Bill article for more information.
How is your federal income tax calculated?
When thinking about federal income taxes, many people zero in on the tax rates and tax brackets. And there's a good reason for that – at the end of the day, your tax bill is based on the bracket you’re in and the corresponding tax rate. But the U.S. tax system’s use of marginal tax rates makes calculating your eventual tax bill a little different than it might seem on the surface.
For example, suppose you’re single with $75,000 in taxable income for the 2025 tax year, which puts you in the 22% tax bracket. Does that mean you owe $16,500 in taxes, which is 22% of $75,000? No. Your tax bill will be less than $16,500, thanks to the use of marginal tax rates.
To see why, let’s take a closer look at marginal tax rates and how they impact your overall tax liability. We’ll also explore an alternative way to measure the taxes you owe, and offer some tips on how to reduce your marginal tax rate. In the end, you’ll hopefully have a better understanding of how your federal income taxes are calculated and how to keep them as low as possible.
What is a marginal tax rate?
Your marginal tax rate is the tax rate applied to the last dollar of your taxable income. Essentially, it’s the highest tax rate that applies to your income.
How do you determine your marginal tax rate?
You can determine your marginal tax rate using the federal income tax brackets, which are based on your filing status and taxable income for the tax year. The tax rate that applies to the tax bracket for your total taxable income is your marginal tax rate.
For instance, if you’re married and filing a joint return with your spouse, and you have a combined taxable income of $150,000 for the 2025 tax year, you’re in the 22% tax bracket – which means your marginal tax rate is 22%.
The tax brackets and rates for the 2025 and 2026 tax years can be found below.
How do marginal tax rates work?
With marginal tax rates, a good portion of your taxable income is typically taxed at rates lower than the rate associated with the tax bracket for the last dollar of taxable income. That’s because income falling within each bracket is taxed at the rate for that bracket. And since the U.S. uses a “progressive” tax rate structure, the rates start low and rise as your income increases.
Let’s run through an example to illustrate how progressive marginal tax rates work.
Example: You’re single and have $50,000 in taxable income in 2025. Based on the 2025 tax brackets (shown below), that puts you in the 22% tax bracket.
Using the marginal tax rates for the 2025 tax year, your first $11,925 of taxable income is only taxed at the 10% rate. So, for that portion of your taxable income, you owe $1,193 in tax.
The next $38,075 of your taxable income – from $11,926 to $48,475 – is taxed at the 12% rate. That results in $4,386 in tax for that income.
Finally, the remaining $1,525 of taxable income – from $48,476 to $50,000 – is taxed at the 22% rate. That comes out to $336 in taxes.
When you add it all up, your tax liability equals $5,915 ($1,193 + $4,386 + $336 = $5,915). Note that this is your “base” tax before any additional taxes, credits, and previous tax payments are taken into account.
The $5,915 tax is much lower than what it'd be if a 22% “flat” tax was imposed. If that were the case, your base tax would be $11,000 ($50,000 x 0.22 = $11,000). So, by using progressive marginal tax rates instead of a flat rate, you save $5,085 ($11,000 - $5,915 = $5,085).
What are the federal income tax rates for 2025 and 2026?
The federal income tax rates for the 2025 and 2026 tax years are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. While tax rates aren’t affected by inflation adjustments, the taxable income ranges for each rate are modified each year.
What are the federal income tax brackets for 2025?
Tax brackets are adjusted annually to account for inflation. Here are the 2025 federal tax brackets:
2025 Filing Status: Single, Married Filing Jointly (MFJ), and Qualifying Surviving Spouse (QSS)
|
Tax Rate |
Single Taxable Income Range (2025) |
MFJ and QSS Taxable Income Range (2025) |
|
10% |
Not over $11,925 |
Not over $23,850 |
|
12% |
Over $11,925 but not over $48,475 |
Over $23,850 but not over $96,950 |
|
22% |
Over $48,475 but not over $103,350 |
Over $96,950 but not over $206,700 |
|
24% |
Over $103,350 but not over $197,300 |
Over $206,700 but not over $394,600 |
|
32% |
Over $197,300 but not over $250,525 |
Over $394,600 but not over $501,050 |
|
35% |
Over $250,525 but not over $626,350 |
Over $501,050 but not over $751,600 |
|
37% |
Over $626,350 |
Over $751,600 |
2025 Filing Status: Head of Household (HOH) and Married Filing Separately (MFS)
|
Tax Rate |
HOH Taxable Income Range (2025) |
MFS Taxable Income Range (2025) |
|
10% |
Not over $17,000 |
Not over $11,925 |
|
12% |
Over $17,000 but not over $64,850 |
Over $11,925 but not over $48,475 |
|
22% |
Over $64,850 but not over $103,350 |
Over $48,475 but not over $103,350 |
|
24% |
Over $103,350 but not over $197,300 |
Over $103,350 but not over $197,300 |
|
32% |
Over $197,300 but not over $250,500 |
Over $197,300 but not over $250,525 |
|
35% |
Over $250,500 but not over $626,350 |
Over $250,525 but not over $375,800 |
|
37% |
Over $626,350 |
Over $375,800 |
TurboTax Tip:
The brackets’ annual adjustments for inflation help minimize “bracket creep,” which is when you’re bumped into a higher tax bracket even though your income doesn’t keep up with inflation.
What are the federal income tax brackets for 2026?
For the 2026 tax year, the federal income tax brackets are as follows:
2026 Filing Status: Single, Married Filing Jointly (MFJ), and Qualifying Surviving Spouse (QSS)
|
Tax Rate |
Single Taxable Income Range (2026) |
MFJ and QSS Taxable Income Range (2026) |
|
10% |
Not over $12,400 |
Not over $24,800 |
|
12% |
Over $12,400 but not over $50,400 |
Over $24,800 but not over $100,800 |
|
22% |
Over $50,400 but not over $105,700 |
Over $100,800 but not over $211,400 |
|
24% |
Over $105,700 but not over $201,775 |
Over $211,400 but not over $403,550 |
|
32% |
Over $201,775 but not over $256,225 |
Over $403,550 but not over $512,450 |
|
35% |
Over $256,225 but not over $640,600 |
Over $512,450 but not over $768,700 |
|
37% |
Over $640,600 |
Over $768,700 |
2026 Filing Status: Head of Household (HOH) and Married Filing Separately (MFS)
|
Tax Rate |
HOH Taxable Income Range (2026) |
MFS Taxable Income Range (2026) |
|
10% |
Not over $17,700 |
Not over $12,400 |
|
12% |
Over $17,700but not over $67,450 |
Over $12,400 but not over $50,400 |
|
22% |
Over $67,450 but not over $105,700 |
Over $50,400 but not over $105,700 |
|
24% |
Over $105,700 but not over $201,750 |
Over $105,700 but not over $201,775 |
|
32% |
Over $201,750 but not over $256,200 |
Over $201,775 but not over $256,225 |
|
35% |
Over $256,200 but not over $640,600 |
Over $256,225 but not over $384,350 |
|
37% |
Over $640,600 |
Over $384,350 |
What is bracket creep?
“Bracket creep” is when you move into a higher tax bracket even though your taxable income grew by less than the rate of inflation. As a result, you end up paying more in taxes without an increase in real earnings.
However, bracket creep is minimized by adjusting the tax bracket income ranges each year to account for inflation. So, if your income rises at or below the rate of inflation, you’ll likely won’t be bumped up to the next highest tax bracket.
Let’s look at a couple of simple examples to show how adjusting the tax brackets can combat bracket creep (bracket income ranges are hypothetical).
Example 1 - No Bracket Adjustments. You have $49,000 of taxable income in Year 1. That puts you in the 12% tax bracket, which runs from $20,001 to $50,000 of taxable income for the year. In Year 2, you have $50,500 of taxable income, which is approximately 3% higher than in Year 1. However, the bracket income ranges aren’t adjusted from Year 1 to Year 2 despite a 4% rate of inflation. In that case, you’re now in the 22% bracket, which runs from $50,001 to $80,000.
Example 2 - Brackets Are Adjustments. Once again, you have $48,000 of taxable income in Year 1, which puts you in the 12% tax bracket ($20,001 to $50,000). In Year 2, you have $50,500 of taxable income, which is approximately 3% higher than in Year 1. However, in this case, the bracket income ranges have been adjusted from Year 1 to Year 2 to account for the 4% rate of inflation. As a result, the 12% bracket for Year 2 now runs from $20,801 to $52,000. Your $50,500 of taxable income still falls within the 12% bracket.
What's your effective tax rate?
Your effective tax rate is the percentage of your total income that must be paid to the IRS. To calculate your effective tax rate, divide your total tax shown on line 24 on your 2025 Form 1040 by your taxable income on line 15. This takes additional taxes and non-refundable tax credits into account.
Your marginal tax rate only tells you the highest rate that will be applied to your income. And running through the numbers to calculate your base tax using the progressive marginal tax rates doesn’t always give you a clear picture of the overall rate at which you’re taxed, either. That’s why many people like to calculate an alternative tax rate—their effective tax rate.
To illustrate, suppose you’re a single filer with $50,000 of taxable income in 2025, which puts you in the 22% tax bracket. Your tax liability for that amount using the marginal tax rates comes to $5,915 (see example above showing how progressive marginal tax rates work). However, let’s add $450 in self-employment taxes and a $1,250 Child and Dependent Care Credit. That results in a total tax of $5,115 ($5,915 + $450 - $1,250 = $5,115). If we divide that by your taxable income, we get an effective tax rate of about 10.23% ($5,115 ÷ $50,000 = 0.1023).
That’s significantly lower than your 22% marginal tax rate under the same circumstances.
|
Category |
Marginal Tax Rate |
Effective Tax Rate |
|
Definition |
Tax rate applied to the last dollar of your taxable income |
Percentage of your total income that must be paid in taxes |
|
Purpose |
Calculating tax owed |
Understanding overall tax burden |
|
Higher or Lower (typically) |
Higher |
Lower |
|
Calculation |
Use tax brackets |
Divide total by taxable income |
|
Takes other taxes into consideration (like self-employment taxes) |
No |
Yes |
|
Takes non-refundable credits into account |
No |
Yes |
How can you reduce your marginal tax rate?
Anything that reduces your taxable income could lower your marginal tax rate—particularly if your taxable income is only slightly above the minimum amount for your tax bracket. If you can drop your taxable income enough to move into a lower tax bracket, then you’ll bring your marginal tax rate down, too.
So, how can you reduce your taxable income?
- Maximize deductions
The best way is to make sure you’re claiming all the itemized tax deductions you’re qualified for. There are many common tax deductions that you might be able to take, including:
- contributions to a traditional IRA
- student loan interest payments
- medical and dental expenses
- state and local taxes
- charitable gifts
- Leverage tax-advantaged accounts
Another way to reduce your taxable income without having to claim a deduction is to put your money in certain tax-advantaged accounts. For instance, if you have access to a traditional 401(k) plan at work (or a similar kind of employer-sponsored retirement plan), any funds you contribute to the account will be excluded from your taxable income that year. (Contributions to a Roth 401(k) plan will be included in your taxable income.)
- Tax loss harvesting
Certain investment strategies can reduce your marginal tax rate, too. For example, selling investments to generate capital losses that can be used to offset capital gains or ordinary income can lower your taxable income. This strategy is known as “tax loss harvesting,” but you need to watch out for the wash-sale rule.
- Primary residence exclusion
Staying in your home long enough to satisfy the rules for excluding capital gain from your home sale can also lower your taxable income.
Can tax credits reduce your marginal tax rate?
Unfortunately, tax credits can’t reduce your marginal tax rate, since they’re claimed after your taxable income is calculated. However, nonrefundable credits are factored into your total tax, so they can lower your effective tax rate.
Are there differences between state marginal tax rates and federal marginal tax rates?
There are several differences between state marginal tax rates and federal marginal tax rates. For instance, states don’t use the same rates used for federal income tax purposes (that is, 10%, 12%, 22%, 24%, 32%, 35%, and 37%). The state rates vary from state to state, too.
State marginal tax rates are also typically lower than the federal rates. For the 2025 tax year, the highest state income tax rate is California’s 13% rate, which is well below the highest federal rate (37%). In most states that use marginal tax rates, the highest state rate is even lower than the lowest federal rate (10%).
In addition, a state’s marginal tax rates only apply to state residents or non-residents who earn income in the state. On the other hand, the federal marginal tax rates apply across the U.S.
Some states use a “flat” tax rate instead of marginal tax rates. A flat rate is a single, fixed tax rate that applies to all taxpayers.
Plus, some states don’t have an income tax at all, so they don’t use marginal rates or a flat rate.
