The tax rate applied to your next dollar of income in the progressive tax system.
Your marginal tax rate is the tax rate applied to the next dollar of income you earn. The U.S. uses a progressive tax system with tax brackets that increase with income. For example, in 2024, a single filer's marginal rates are: 10% up to $11,600, 12% up to $47,150, 22% up to $100,525, etc. If you earn $50,000, your last dollar is taxed at the 22% bracket, so your marginal rate is 22%. Your average tax rate (total taxes divided by total income) is always lower than your marginal rate in a progressive system. Understanding your marginal rate is crucial for financial planning: tax-advantaged contributions (401k, IRA) are worth more at higher marginal rates. An extra $1,000 in income means $220 in taxes (at 22% marginal rate), not $220 average.