Question

Why do we pay attention to marginal tax rate?

Answer 1

The marginal tax is the rate which a person or an entity pays the tax to IRS. The marginal tax by word itself means the additional tax on the additional dollar earned. The marginal tax rate is different for different level of income hence, it important and should be paid attention. The IRS presents marginal tax in different income brackets and applied tax rate on each bracket of income.

The example shown below (just an example don’t take it as present tax rates):

$0 to $10,000, your tax bracket is 10 percent;

$10,000 to $50,000, your bracket is 15 percent;

$50,000 to $80,000, your bracket is 25 percent;

$80,000 and above, your bracket is 35 percent.

It is clear from above that a different tax rates are applied for different level of income. With an additional income to previous bracket will attract a different tax rate.

The marginal tax rates are important for above reason and tax payer should pay attention.