Marginal vs Effective Tax Rate Calculator

Your marginal tax rate is the rate you pay on your next dollar of income — the top bracket your income reaches. Your effective tax rate is your total tax divided by your total income, i.e. your real average rate across every bracket. Because a progressive system only taxes the income within each band at that band's rate, your effective rate is always lower than your marginal rate. For example, someone with a 40% marginal rate might have an effective rate of just 22%.

No — this is the single most common tax misconception. Moving into a higher bracket only taxes the income above that threshold at the higher rate; every dollar below the threshold is taxed exactly as before. So a raise always increases your take-home pay. You keep less of the portion above the threshold, but you never lose money overall by earning more. This calculator proves it with your own numbers.

True marginal rates above 100% are rare and come from cliff-edge benefit or allowance rules, not ordinary tax brackets. The closest common example is the UK's £100,000 Personal Allowance taper, where the allowance is withdrawn £1 for every £2 earned above £100,000 — pushing the effective marginal rate to about 60%. It's still below 100%, so a raise still leaves you better off, but it's a real zone worth planning around (e.g. via pension contributions).

Use your marginal rate to evaluate decisions about extra income or deductions — a pre-tax pension contribution, an extra shift, or a deductible expense is valued at your marginal rate, because it affects the top slice of your income. Use your effective rate to understand your overall tax burden and to compare year to year. Confusing the two leads people to overestimate what tax costs them on a raise.