Two numbers describe your taxes, and mixing them up is behind some of the most stubborn money myths — including the belief that a raise can leave you worse off. Once you separate marginal from effective, the whole system clicks.
Marginal rate: the tax on your next dollar
Your marginal rate is the bracket your last dollar of income falls into. If you're 'in the 24% bracket,' that means your next dollar earned is taxed at 24% — not all your income.
Effective rate: your overall average
Your effective rate is total tax divided by total income — the blended average across every bracket your income passed through. It's always lower than your marginal rate, because your first dollars enjoyed lower rates (and the standard deduction taxed some at 0%).
A worked example
Say a single filer has $70,000 of taxable income in 2025. Income is taxed in slices:
| Slice | Rate | Tax |
|---|---|---|
| First $11,925 | 10% | $1,193 |
| $11,925–$48,475 | 12% | $4,386 |
| $48,475–$70,000 | 22% | $4,736 |
| Total | — | ≈ $10,315 |
Marginal rate: 22% (the top slice). Effective rate: $10,315 ÷ $70,000 ≈ 14.7%. Same income, two very different — and both correct — numbers.
Why the distinction matters
- Evaluating a raise or bonus: use your marginal rate — that's what the new income is taxed at.
- Valuing a deduction: a deduction saves you tax at your marginal rate.
- Understanding your burden: your effective rate is the honest 'how much of my income goes to tax' figure.
The myth that 'a raise bumped me into a higher bracket so I take home less' confuses the two rates. Only the dollars in the new bracket are taxed higher — see tax brackets explained.
Frequently asked questions
Which rate should I use for planning?
Use your marginal rate to evaluate one more dollar of income or one more deduction. Use your effective rate to understand your overall tax burden.
Is my effective rate always lower than my marginal rate?
Yes, in a progressive system. Because early dollars are taxed at lower rates (and some at 0%), your average is always below the rate on your top dollar.