point on the income tax rate schedules where an individual's taxable income-that is, income subject to tax after exemptions and deductions-lands. Also called the marginal tax bracket, it is expressed as a percentage to be applied to each additional dollar earned over the base amount for that bracket.
point on the income-tax rate schedules where taxable income falls; also called marginal tax bracket. It is expressed as a percentage applied to each additional dollar earned over the base amount for that bracket. Under a progressive tax system increases in taxable income lead to higher marginal rates in the form of higher brackets. There are six tax brackets for individuals: 10%, 15%, 25%, 28%, 33%, and 35%. A deduction comes off the last marginal dollar earned; thus the 33% taxpayer would save $33 in taxes with each additional $100 of deductions until he worked his way back into the 28% bracket where each $100 deduction would save $28. (A deduction should not be confused with a tax credit.)
For corporations, there are six effective tax brackets. Firms with taxable incomes of $50,000 or less are subject to a 15% rate; incomes from $50,000 to $75,000 are taxed at 25%; incomes from $75,000 to $100,000 are taxed at 34%; incomes from $100,000 to $335,000 are taxed at 39%; incomes from $335,000 to $10 million are taxed at 34%; incomes from $10 million to $15 million are taxed at 35%; incomes from $15 million to $18.3 million are taxed at 38% and those with incomes over $18.3 million are taxed at 35%.
marginal rate for income taxes; the percentage of each additional dollar in income required to be paid as income taxes.
Example: Abel is considering an investment that will produce $1,000 in taxable income for the next year. Abel's taxable income is currently $20,000, which places Abel in the 28% tax bracket. Thus, should Abel make the investment, $280 of the $1,000 will be paid in taxes.
