How to Calculate the Marginal Tax Rate in Economics

by Ryan Menezes ; Updated April 19, 2017
The marginal tax rate reveals the tax you owe on new income.

The government charges you higher tax rates as your income rises. For example, a married couple filing jointly in 2011 for their 2010 income owe 10 percent on the first $16,750 of their income. They owe 15 percent on the next $51,250, and if they have further income, they will owe 25 percent on the following $69,300 and 28 percent on the $71,950 after that. The marginal tax rate describes the tax rate on an increase in a filer's taxable income. It takes into account that the Internal Revenue Service may charge parts of the increase at different rates.

Step 1

Divide the income whose marginal tax rate you're calculating according to its statutory tax rates, which are the standard tax rates under the law. For example, imagine that you are a couple whose taxable income equals $50,000. You wish to calculate the marginal tax rate on a new venture that will earn you $35,000. The IRS will charge you 15 percent on the first $18,000 of that $35,000 and will charge you 25 percent on the remaining $17,000.

Step 2

Multiply each portion of the new income by its tax rate: 0.15 × $18,000 = $2,700; 0.25 × 17,000 = $4,250.

Step 3

Add these results together: $2,700 + $4,250 = $6,950.

Step 4

Divide this new sum by the income whose rate you're calculating: $6,950 ÷ $35,000 = 0.198571429.

Step 5

Multiply this answer by 100: 0.198571429 × 100 = 19.8571429.

Step 6

Round this result to a level that suits your needs. 19.8571429 is approximately 19.86, so this is the marginal tax rate on the additional income.

References

About the Author

Ryan Menezes is a professional writer and blogger. He has a Bachelor of Science in journalism from Boston University and has written for the American Civil Liberties Union, the marketing firm InSegment and the project management service Assembla. He is also a member of Mensa and the American Parliamentary Debate Association.

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