Marginal-tax-rate definitions

The tax rate that is paid on an additional dollar of taxable income. In progressive tax systems, the tax rate paid increases as income rises. The U.S. and many European companies have a progressive tax system. For example, suppose the tax rate is 25% for the first $25,000 of a person’s income and 35% for the next $10,000. A person earning $30,000 a year would have a marginal tax rate of 35%, as any additional income earned by the person would be taxed at 35%. The actual percentage rate of tax that ends up being paid will vary according to the amount of deductions that are taken.
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