How the marginal tax rate works
The Internal Revenue Service (IRS) divides taxable income, which is generally your income after adjustments and deductions, into tax brackets (income ranges each tax rate applies to). Both the 2025 and 2026 tax years use seven federal rates:
- 10%
- 12%
- 22%
- 24%
- 32%
- 35%
- 37%
The income thresholds for those brackets change by tax year and filing status (e.g., Single, Married Filing Jointly, Married Filing Separately, or Head of Household). For example, the 22% bracket for a single filer begins at $48,476 of taxable income in 2025 and $50,401 in 2026.
The table below shows a simplified 2026 calculation for a single filer with $60,000 in taxable income, before tax credits.
| Portion of taxable income | Tax rate | Tax on that portion |
|---|---|---|
| First $12,400 | 10% | $1,240 |
| $12,401 through $50,400 | 12% | $4,560 |
| $50,401 through $60,000 | 22% | $2,112 |
| Total | $7,912 |
The filer’s marginal tax rate is 22% because that’s the highest rate applied. But only the final $9,600 is taxed at 22%.
Marginal tax rate vs. effective tax rate
Your marginal tax rate applies to the next dollar of ordinary taxable income you earn. Your effective tax rate is the average rate paid across your taxable income:
Total federal income tax ÷ taxable income = effective tax rate
In the example above, $7,912 divided by $60,000 equals an effective tax rate of about 13.2%.
What a raise means for your tax bracket
Moving into a higher bracket doesn’t cause all your income to be taxed at the higher rate. Only the income above the new bracket threshold is subject to that rate.
A raise may still affect deductions or credits that phase out as income increases. Different types of income may also follow different rate schedules. For example, long-term capital gains may be taxed differently from wages and other ordinary income.
Ways to reduce taxable income
Depending on your eligibility, you may be able to reduce the income subject to your marginal rate by:
- Making pretax contributions to a traditional 401(k)
- Contributing to a health savings account (HSA) while on a High Deductible Health Plan (HDHP)
- Making deductible contributions to a traditional individual retirement account (IRA)
- Claiming other deductions such as the standard deduction or eligible itemized deductions
Note: These steps reduce taxable income rather than changing the tax rates themselves.
