Marginal vs effective tax rate

Federal income tax is progressive: income is taxed in slices, and each slice has its own rate. For a single filer in 2026, the rates run from 10% on the first slice to 37% on taxable income over $640,600. Your bracket is the slice your last dollar lands in. Everything below it is taxed at the lower rates whatever you earn.

A worked example

Take a single filer with a $85,000 salary and no other income. The standard deduction of $16,100 comes off first, leaving taxable income of $68,900. That income fills 3 brackets:

• the first $12,400 at 10%: $1,240.00;
• the next $38,000 at 12%: $4,560.00;
• the last $18,500 at 22%: $4,070.00.

Total federal income tax is $9,870.00. The marginal rate is 22%, because that is the rate on the last slice. The effective rate depends on what you divide by. As a share of taxable income it is 14.33%. As a share of the whole salary, which is the comparison most people want, it is 11.61%.

The same $85,000 on a joint return for a one-earner married couple pays $5,840.00. The brackets for joint filers are about twice as wide, so the couple’s marginal rate is 12% and their effective rate on the salary is 6.87%.

A raise never lowers your take-home pay

The most persistent myth about brackets is that crossing into a higher one can leave you worse off. It cannot, because only the income above the line is taxed at the higher rate.

Put a single filer at $66,500 of salary, which leaves taxable income exactly at the top of the 12% bracket, $50,400. A $1,000 raise takes them into the 22% bracket. Federal income tax rises by $220.00, which is the higher rate on the raise alone. Their effective rate moves from 8.72% to 8.92%. The rest of their income is untouched.

There are a few genuine cliffs in the tax system, but they come from credits and benefits that phase out, not from brackets. The earned income tax credit, the premium tax credit for marketplace health insurance and some state benefits can fall faster than income rises over short ranges. If you are near one of those limits, run both incomes through the refund estimator before turning down hours.

The all-in marginal rate

The bracket rate is only the federal income tax part of what a raise costs. Social Security and Medicare take 7.65% of each extra dollar up to the wage base, and most states take their share too.

For the $85,000 earner in Illinois, which taxes income at a flat 4.95%, a $1,000 raise adds $653.93 to take-home pay over the year. The all-in marginal rate is 34.6%. The all-in effective rate on the whole salary is 24.2%: of $85,000, $64,420 reaches the bank. In California, where the state’s own brackets and disability insurance are added, the same raise keeps $587.90, an all-in marginal rate of 41.2%.

That all-in marginal rate is the right number for decisions at the edge: whether extra shifts are worth it, what a side job really pays, or how much a raise is worth against a longer commute.

State brackets work the same way

Most states with an income tax use brackets too, and the same logic applies: a raise is taxed at the state’s rate on the slice it falls into, never on everything you earn. Some states are flat, like Illinois above, so the state marginal and effective rates are almost the same once the state’s small personal exemption is taken off. A few graduated states phase out their lower brackets at high incomes, which briefly raises the marginal rate above the top bracket rate over a narrow band of income.

Local income taxes, where they exist, are usually flat percentages of wages. They add to the marginal rate one for one. Our local income taxes guide lists them, and each state paycheck page shows the state’s own rates with an example at the state’s median wage.

Which rate to use for which question

Use the marginal rate for anything that adds or removes income at the top:

• the tax saved by a traditional 401(k) or HSA contribution, which comes off your highest slice first;
• the value of a deduction, such as the new deductions for tips and overtime;
• the tax on a raise, a bonus or freelance income.

Deductions can span brackets. A large deduction that pulls income down through a bracket line saves the higher rate on part and the lower rate on the rest. Our overtime guide shows one.

Use the effective rate for anything about the whole:

• comparing your tax burden with someone else’s, or with another state;
• budgeting: the share of gross pay you keep is one minus the all-in effective rate;
• judging whether a tax change matters much to you overall.

Credits work differently

Deductions reduce income, so their value depends on your marginal rate. Credits reduce tax directly, a dollar for a dollar, so a child tax credit is worth the same to someone in the lowest bracket as to someone in a high one, as long as there is tax to offset or the credit is refundable. That is why the W-4 asks for credits as dollar amounts in Step 3, and for deductions separately in Step 4(b). The W-4 guide walks through both.

Withholding is not your rate either

The amount withheld from a paycheck is an estimate built from the same brackets, spread over the year. A bonus withheld at the flat supplemental rate, for example, can look like a higher tax rate than your bracket, or a lower one. The bonus guide explains when each happens. The return is where the real rates apply.

Every figure on this page is computed by the same code as our calculators. How we calculate.