marginal tax rate

marginal tax rate definition - business

marginal tax rate

The percentage of extra income received that must be paid in taxes. A person's marginal tax rate should be considered in making investment choices. For example, a decision whether or not to purchase municipal bonds is primarily a function of the investor's marginal tax rate. Also called tax bracket. See also average tax rate, progressive tax.

How can I determine my marginal tax rate?

Your marginal tax rate is a function of income level, filing status, and statutory tax rates. IRS Form 1040 contains tables based on statutory income tax rates (10%, 15%, 25%, 28%, 33%, and 35% for 2007) and filing status (e.g., single, married filing jointly, and so forth). You find your marginal tax rate by matching your taxable income with the appropriate table.

You should note that your overall marginal income tax rate is usually higher than your federal marginal tax rate because you may be subject to state and municipal income taxes. In addition, income tax credits could reduce your marginal tax rate.

Peter M. Bergevin, PhD, Professor of Accounting, School of Business, University of Redlands, Redlands, CA

The American Heritage® Dictionary of Business Terms Copyright © 2009 by Houghton Mifflin Harcourt Publishing Company. Published by Houghton Mifflin Harcourt Publishing Company. All rights reserved.

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