Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 1
Using income tax as an example --
In 2008 s single tax payer will pay an income tax of 10% on taxable income up to $8,025. Taxable income over $8,025 up to $32,550 is taxed at a rate of 15%. Suppose the tax payer has taxable income of $10,000. This means they would pay 10% of $8,025 or $802.50 plus 15% of the amount over $8,025 which would be $296.25 ((10,000 - 8025) * .15) = 296.25 for a total tax of $1,098.75 (802.50 + 296.25 = 1098.75)
In this case the taxpayers marginal tax rate is 15% which is the rate on the last dollar of income.
The taxpayers effective rate is about 11% which is the total tax payed divided by the total income. (1098.75 / 10000 = .109875)
Marginal tax rate is the tax rate on the last dollar made. In other words if you make an additional dollar how much tax is paid. Conversly, if income is reduced what is the tax savings.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.