What is the Marginal Tax Rate? 

Marginal tax rate refers to the rate of taxation applicable to the next dollar of income. The marginal tax rate is relevant when there is a tiered tax system where all earnings within a specified range is taxed at a state rate. Any income above or below that range is taxed at a different tax rate.  

For example, assume the first $10,000 of earnings is taxed at a 10% rate, and any earnings from $10,001 – $25,000 are taxed at a 15% rate. The marginal tax rate for any income (up to $15,000 additional earnings) above the initial $10,000 will be taxed at 15% marginal tax rate. 

In this example, someone who earns $11,000 would pay $1150 (($10,000 x 10% = $1,000) + ($1,000 x 15% = $150) in taxes. 

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