How to Calculate Marginal Tax Rate
The marginal tax rate is the percentage of tax you pay on the last dollar of your income. In many countries, tax rates are tiered so you might pay 10 percent of your first $10,000 of income in taxes, 20 percent of the next $25,000 of income, and 30 percent on any income above that. If you made $30,000, your first $10,000 would be taxed at 10 percent and the remaining $20,000 would be taxed at 20 percent, so your marginal rate would be 20 percent.
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Instructions
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Calculate your total income. This includes wages, tips, interest, and bonuses. For this example, assume you made $40,450.
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Calculate total deductions. This can either be the standard deduction or you may itemize deductions. To determine the deductions for you, consult the instructions for Form 1040. In 2010, the standard deduction was $5,700 for a single person and $11,400 for married couples filing jointly. The numbers can change every year, though, so be sure to check with the IRS website for updates. Find a link in the References section.
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Find the adjusted gross income by subtracting your deductions from your gross income. In this example, subtract $5,700 from $40,450 and you get an adjusted gross income of $34,750.
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Use the tax schedule to determine the marginal tax rate. In 2010, any income over $34,000 was taxed at a rate of 25 percent, so this would be the marginal tax rate. Note that this rate would only be applied to the last $750 in income in our example -- the remaining $34,000 would be taxed at the lower 15 percent and 10 percent rates.
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Tips & Warnings
Consider itemizing your deductions on paper to see if the total would be greater than the standard deduction.
References
- Photo Credit tax forms image by Chad McDermott from Fotolia.com
