A marginal tax rate is the tax rate that applies to the last dollar of the tax base (taxable income or spending), and is often applied to the change in one's tax obligation as income rises:
To calculate the marginal tax rate on an income tax:
* Let m be the marginal tax rate.
* Let t be the tax liability.
* Let i be the taxable income.
m = \frac{\Delta t}{\Delta i}
For an individual, it can be determined by increasing or decreasing the income earned or spent and calculating the change in taxes payable. An individual's tax bracket is the range of income for which a given marginal tax rate applies. The marginal tax rate may increase or decrease as income or consumption increases, although in most countries the tax rate is (in principle) progressive. In such cases, the average tax rate will be lower than the marginal tax rate: an individual may have a marginal tax rate of 45%, but pay average tax of half this amount. In a jurisdiction with a flat tax, everyone pays the same marginal tax rate. Some fixed amount of earnings (e.g., the first ten thousand dollars) is typically exempt from the flat tax, which means that not everyone pays the same average tax rate.
To calculate the marginal tax rate on an income tax:
* Let m be the marginal tax rate.
* Let t be the tax liability.
* Let i be the taxable income.
m = \frac{\Delta t}{\Delta i}
For an individual, it can be determined by increasing or decreasing the income earned or spent and calculating the change in taxes payable. An individual's tax bracket is the range of income for which a given marginal tax rate applies. The marginal tax rate may increase or decrease as income or consumption increases, although in most countries the tax rate is (in principle) progressive. In such cases, the average tax rate will be lower than the marginal tax rate: an individual may have a marginal tax rate of 45%, but pay average tax of half this amount. In a jurisdiction with a flat tax, everyone pays the same marginal tax rate. Some fixed amount of earnings (e.g., the first ten thousand dollars) is typically exempt from the flat tax, which means that not everyone pays the same average tax rate.
