Marginal Tax Rate
Definition
The rate of tax applied to the next unit of income — the bracket the last dollar earned falls into. It differs from the effective rate, which is total tax as a share of all income.
Related Terms in US Tax
Effective Tax Rate
Total tax paid as a percentage of total income, giving the average rate across all brackets. It is usually lower than the marginal rate because earlier income is taxed at lower rates.
Tax Credit vs Deduction
A deduction reduces taxable income, so its value depends on the tax rate; a credit reduces the tax bill directly, dollar for dollar. Credits are generally worth more than deductions of the same amount.
Form 1040
The main US individual income-tax return, on which taxpayers report income, claim deductions and credits, and calculate the tax owed or refund due for the year.
Form 1120
The US federal income-tax return filed by C corporations to report income, deductions and the corporate tax owed. S corporations instead file Form 1120-S.
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