How to Calculate the Marginal Tax Rate in Economics

by Ryan Menezes

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.

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.

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

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

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

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

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.

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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