Understanding Tax Brackets: How Marginal Rates Actually Work

The Most Common Tax Misconception

Many people believe that moving into a higher tax bracket means ALL their income is taxed at the higher rate. This is wrong. The US uses a progressive (marginal) tax system where only the income within each bracket is taxed at that bracket's rate.

2025 Federal Tax Brackets (Single)

How It Actually Works

If you earn $60,000 in taxable income (single):

First $11,925 taxed at 10% = $1,192.50

Next $36,550 ($11,926 to $48,475) at 12% = $4,386.00

Remaining $11,525 ($48,476 to $60,000) at 22% = $2,535.50

Total tax: $8,114

Effective rate: 13.5% (not 22%)

Your marginal rate is 22% (the rate on your last dollar), but your effective rate is much lower.

Why This Matters

Understanding marginal rates means you should never turn down a raise because it would "put you in a higher bracket." Only the additional income is taxed at the higher rate. You always take home more money with more income.

Marginal vs Effective Rate

Marginal rate: The rate applied to your next dollar of income

Effective rate: Your total tax divided by total income

Use Taxation.ai's free salary calculator to instantly see your marginal and effective tax rates across different countries.