Glossary
Marginal tax rate
Definition
The marginal tax rate is the rate applied to the next dollar of taxable income, the top bracket a taxpayer's income reaches. It is the right rate for valuing a deduction, a bonus or a Roth conversion, and it is always at least as high as the effective rate.
How marginal tax rate works
U.S. federal income tax is progressive: income is taxed in layers at rising rates. Only the income within each bracket is taxed at that bracket's rate, using 2026 brackets and standard deductions (Rev. Proc. 2025-32)2026 · IRS Rev. Proc. 2025-32.
A real marginal rate can exceed the bracket rate when phase-outs, the net investment income tax or the taxation of Social Security apply.
A $1,000 deduction in the 22% bracket saves $220.
Why it matters to a firm
Almost every planning recommendation is priced at the marginal rate. Clients who understand it make better decisions and trust the advice.
| 2026 figure | Source |
|---|---|
| Federal income tax brackets and standard deduction: 2026 brackets and standard deductions (Rev. Proc. 2025-32) | IRS Rev. Proc. 2025-32, as amended by the 2025 tax law |
Questions about marginal tax rate
Is my whole income taxed at my marginal rate?
No, only the part in the top bracket.
Can a raise reduce my take-home pay?
Not through federal income tax brackets.
Why does it matter for deductions?
Deductions save tax at the marginal rate.
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Related terms: Effective tax rate · Tax bracket · Taxable income
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