Marginal vs effective tax rate

Two rates, and only one of them is what you pay

Your marginal rate is the rate on your next dollar of income. Your effective rate is the average across everything you earned. They are almost never close, and confusing them is the single most widespread misconception about personal tax.

The gap exists because brackets are slices. Income is taxed in layers: 10.00% on the portion from $0 to $12,400, 12.00% on the portion from $12,400 to $50,400, 22.00% on the portion from $50,400 to $105,700, and so on. Reaching a bracket does not move the earlier layers; they stay taxed at what they were.

On $85,000 single, the top bracket reached is 22.00% but the federal income tax is $9,870 — an effective 11.61% of gross. Someone quoting their bracket as their tax rate is overstating what they pay by more than a third.

The effective rate is always below the marginal rate, at every income, in every filing status. That is not a coincidence or a rule of thumb — it follows directly from the bracket structure, and it is why "I'm in the 22% bracket" answers a different question from "what proportion of my income goes to tax".

Which one you want depends on the question. Deciding whether to take on extra work, make a retirement contribution or realise a gain: marginal, because those all concern the next dollar. Budgeting, comparing offers or understanding a payslip: effective, because that is what actually leaves.

The gap at four different incomes

The two rates diverge differently at different incomes, and seeing four at once makes the shape obvious.

On $45,000: marginal rate 12.00%, effective rate on income tax 7.16% — a gap of 4.8 percentage points. Federal income tax of $3,220, plus $3,443 of FICA.

On $85,000: marginal rate 22.00%, effective rate on income tax 11.61% — a gap of 10.4 percentage points. Federal income tax of $9,870, plus $6,503 of FICA.

On $150,000: marginal rate 24.00%, effective rate on income tax 16.49% — a gap of 7.5 percentage points. Federal income tax of $24,734, plus $11,475 of FICA.

On $300,000: marginal rate 35.00%, effective rate on income tax 22.71% — a gap of 12.3 percentage points. Federal income tax of $68,134, plus $16,689 of FICA.

Notice the gap widens as income rises. At lower incomes most of your money sits in the bracket you are currently in, so the two rates are closer; at higher incomes the majority of income was taxed in lower brackets, and the average falls far below the top rate reached.

There is more than one effective rate, and they are not comparable

"Effective rate" is used for at least three different calculations, and mixing them produces conclusions that sound alarming and mean nothing.

Federal income tax over gross income. On $85,000, 11.61%. This is the one that compares meaningfully against your marginal bracket, because both concern the same tax.

Federal income tax over taxable income. The same tax divided by $68,900 rather than by $85,000, which gives 14.33% — a higher number describing the same bill. Both are correct; only the denominator changed.

Total tax over gross income. Adding FICA and state tax: 19.26% federally before any state. This is closest to what leaves your pay, and it is the one that must never be compared against a federal marginal bracket, because it includes two taxes the bracket knows nothing about.

That last comparison is a mistake we made ourselves: an AI explanation on this site once told a user their effective rate exceeded their marginal rate and called it surprising. Both numbers were right and the comparison was meaningless. The figures sent to the model now carry labels saying which are comparable.

Your real marginal rate is usually higher than your bracket

The bracket is only the income tax component. The actual cost of your next dollar includes payroll tax and state tax, and can include the loss of a credit that is phasing out.

Start with FICA: 7.65% on wages, from the first dollar with no deduction, until the $184,500 Social Security ceiling. So an employee in the 22.00% bracket faces 29.65% federally on the next dollar earned, before the state takes anything.

Then the state. On $85,000 that ranges from nothing to a state marginal rate approaching ten percent depending on where you live — and in eleven states a city or county rate after that.

Then phase-outs, which is where the real spikes are. Inside the EITC taper each extra dollar reduces the credit as well as being taxed. The Child Tax Credit reduces by $50 per $1,000 above its threshold. The QBI deduction phases out for professional services. Where two overlap, the effective marginal rate can exceed anything in the tax tables.

That is the honest explanation for why a raise sometimes produces less than expected — and it is a real effect rather than a misperception. What remains true is that more income always leaves you with more money: the phase-outs taper at less than a dollar per dollar, so the improvement slows without reversing.

Using the right rate for the decision in front of you

A retirement contribution saves your marginal rate, not your effective rate. Putting $5,000 into a traditional 401(k) at $85,000 of income saves $1,100 in federal income tax — not $581, which is what using the effective rate would suggest.

Whether to take overtime or a second job is a marginal question too, and the right rate to apply is the true marginal one from the section above: bracket plus FICA plus state plus any phase-out you are inside.

Comparing two salary offers is an effective-rate question. What matters is total tax over total income in each case, in each state, which is what produces the take-home figure you can actually compare.

Deciding between traditional and Roth is marginal at both ends: your rate now against your expected rate at withdrawal. Traditional wins where you are deducting at a high rate and withdrawing at a low one; Roth wins in the reverse.

And when someone quotes a tax rate at you — in an article, a headline or an argument — the first question is always which of the two they mean. A great deal of confident commentary about tax burdens compares one country's marginal rate against another's effective rate and reaches a conclusion neither figure supports.

Where the confusion does real damage

This is not an academic distinction. Four common decisions get made badly because of it, and each costs money in a predictable direction.

Turning down work. "It'll all go in tax" is never true of a bracket. Only the portion crossing into a higher band is taxed at the higher rate, and the rest of the income is untouched. There is no salary at which an extra dollar earned costs more than a dollar in income tax.

Overstating what a deduction saves. A $1,000 deduction is worth your marginal rate — $220 at 22.00% — not the whole $1,000. Spending money to save tax only makes sense when you wanted the thing anyway.

Understating what a retirement contribution saves. The opposite error, and it costs more. A contribution comes off the top of your income, so it saves the marginal rate, not the effective one. Using the effective rate makes contributing look substantially less attractive than it is.

Comparing countries or states badly. A great deal of confident commentary sets one place's top marginal rate against another's effective rate and reaches a conclusion neither figure supports. When you see a tax rate quoted, the first question is which of the two it is.

The rates that no tax table shows

Brackets are published. Phase-outs are not published as rates at all, and they can exceed any bracket.

Inside the Earned Income Tax Credit taper, each extra dollar reduces the credit as well as being taxed. For a family with two children the taper runs at roughly 21.06% on top of income tax and payroll tax — an effective marginal rate at a modest income that exceeds what a high earner faces.

The Child Tax Credit reduces by $50 per $1,000 above its threshold, which adds 5.00% to the marginal rate through that range. The qualified business income deduction phases out for professional services across a defined band, adding considerably more.

Where two overlap, the combined effect can approach or exceed 100% of the additional income — which is the genuine version of the "extra work isn't worth it" complaint. It is not a misunderstanding of brackets; it is a real feature of stacked phase-outs.

The lever that exists is AGI. Contributions that reduce it — traditional retirement, HSA, self-employed health premiums — can restore a phasing-out benefit as well as sheltering the contribution, and where that happens the effective saving far exceeds the marginal rate.

Finding both rates on your own payslip

Take a payslip and the arithmetic is straightforward. Federal income tax withheld, multiplied by your pay periods, divided by annual gross, gives your approximate federal effective rate on income tax.

Add the Social Security and Medicare lines to get the total federal effective rate. On $85,000 single that is 19.26% — meaningfully higher than the 11.61% on income tax alone, and this is the number that describes what actually leaves.

Your marginal rate is not on the payslip at all and has to be looked up: find where your taxable income — gross minus pre-tax deductions minus the standard deduction — falls in the bracket table. On this salary that is 22.00%.

Then add the state, which has its own effective and marginal rates on its own base. And in eleven states a local line, which is generally flat and therefore has the same marginal and effective rate.

The check worth doing once a year: annualise the withholding and compare it against what you actually owe. That comparison catches a W-4 that was never applied, a status set wrong on joining, or a state form left at a default — all of which persist silently for years otherwise.

Both rates move with filing status

Filing status changes the deduction and the bracket widths, so it moves both rates on identical income. On $85,000, a single filer has a marginal rate of 22.00% and an effective rate of 11.61%; a joint filer on the same income has 12.00% and 6.87%.

That is a difference of $4,030 in tax on the same salary, and it is why quoting a rate without a status is incomplete. Most published "average tax rate at $X" figures are single-filer numbers, and most households are not.

Head of household sits between the two, with a deduction of $24,150 and brackets wider than single. For a qualifying unmarried person with a dependant it is materially better than single, and it is the status most often left unclaimed.

In a two-earner household the joint effective rate is computed on combined income, so neither spouse has an individual rate in any meaningful sense. Asking "what is my tax rate" separately from your spouse's is asking a question the return does not answer.

And where a household is deciding between joint and separate filing, both rates should be computed both ways. Separate filing is usually worse and occasionally necessary, and the difference on identical income is frequently in the thousands.

Why cross-country tax comparisons are usually wrong

Comparisons between countries are the place this confusion does the most damage in public argument, because the two rates are routinely mixed across the comparison without anyone noticing.

Headline top marginal rates are the figure usually quoted, and they are the least informative available. They ignore where the threshold sits, what the deduction is, whether social contributions are separate or included, and whether the rate covers national and local tax or only one.

The US structure separates income tax from payroll tax and from state tax. Several other countries fold equivalents into a single rate, so a headline that looks high may include what the US reports as three separate lines — and a headline that looks low may exclude a substantial social contribution.

The comparable figure is the effective rate on total tax over total income at a specified salary and household composition, which is much harder to find and much less quotable. When an article compares tax burdens without specifying an income and a household, it is not comparing anything.

The same caution applies within the US, and this site is built around it: the state pages compute tax rather than listing rates, precisely because a rate table with no deduction and no thresholds ranks states in an order that does not survive contact with an actual salary.

Where the figures in this guide come from

Every number above comes from IRS Rev. Proc. 2025-32, § 3.01, Tables 1-4, read off the document itself rather than off a summary of it. Every rate on this page is computed from the bracket table rather than quoted, which is why the effective figures carry decimals a rounded summary would have lost.

That distinction is not pedantry. When we audited this category in August 2026, sites ranking on the first page for "2026 income tax calculator" were publishing a standard deduction of $15,200 single — the previous year's figure — while linking to the correct IRS page from the same screen.

State figures were read one state at a time off each department of revenue's own publication. Of 37 states reviewed, 21 matched the compiled sources everyone uses and 12 did not. The errors were overwhelmingly about timing rather than structure: rates superseded by legislation passed after the compilation, several of them backdated to 1 January.

So each figure on this site carries the document it came from and the date it was checked, and where something has not yet been read off a primary source the page says so rather than implying it has. "We have not looked" and "it does not exist" are different claims, and only one of them is a reason to stop looking.

The check we would suggest running on anything you read about marginal and effective rates, here included: find the underlying figure, and compare it against the source it claims to come from. It takes two minutes and it settles the question that no amount of confident writing can.

A quick reference for the two numbers

To find your marginal rate: take your gross income, subtract pre-tax deductions and your standard or itemised deduction, and see which bracket the result falls in. On $85,000 single with the standard deduction, taxable income is $68,900 and the marginal rate is 22.00%.

To find your effective rate on income tax: divide your federal income tax by your gross income. Here, $9,870 over $85,000 gives 11.61%. This is the one that compares meaningfully against the marginal rate.

To find your total effective rate: divide total tax including FICA by gross income — 19.26% federally on this salary, before any state tax. This is what actually leaves your pay, and it must never be set against a federal marginal bracket.

To find your true marginal rate: add payroll tax and state tax to the bracket, plus anything phasing out at your income. An employee in the 22.00% bracket faces 29.65% federally on the next dollar before their state.

Which to use: marginal for anything about the next dollar — a raise, overtime, a retirement contribution, realising a gain. Effective for anything about the whole — budgeting, comparing offers, understanding a payslip.

Questions

What is the difference between marginal and effective tax rate?

Marginal is the rate on your next dollar; effective is the average across everything you earned. On $85,000 single the marginal rate is 22.00% and the effective rate on federal income tax is 11.61% — the tax is $9,870, not 22.00% of your income.

Can my effective rate be higher than my marginal rate?

Not for the same tax. It can look that way when a total effective rate including FICA and state tax is compared against a federal income tax bracket — but those measure different things, and the comparison is meaningless rather than surprising.

Which rate should I use for a 401(k) decision?

Marginal, because the contribution comes off the top of your income. At $85,000 a $5,000 contribution saves $1,100 in federal income tax at a 22.00% marginal rate — not the effective rate, which would understate it substantially.

What is my true marginal rate?

Your bracket plus payroll tax plus state tax, plus any credit that is phasing out at your income. An employee in the 22.00% bracket faces 29.65% federally before their state, and considerably more inside a phase-out range.

Does a raise ever leave me worse off?

Not from tax brackets — only the portion crossing into a higher bracket is taxed at the higher rate. Benefit cliffs are different: a subsidy that ends abruptly at an income threshold genuinely can cost more than the raise. Tax brackets taper; some benefits do not.

Why does my payslip suggest a higher rate than my bracket?

Because it includes FICA at 7.65% and state tax, neither of which is in the federal bracket. On $85,000, federal income tax and FICA together come to $16,373, an effective 19.26% before your state takes anything.