Effective vs Marginal Tax Rate: The Difference, With a Worked Example
These two rates answer different questions. Your marginal rate tells you the tax on your next dollar of income. Your effective rate tells you what share of your taxable income you actually pay overall. Confusing them is the most common tax mistake people make, and it leads to the myth that a raise can leave you worse off.
Marginal rate: the tax on your last dollar
US federal brackets are progressive. The first slice of your taxable income is taxed at 10%, the next slice at 12%, and so on. Your marginal rate is simply the highest bracket your income reaches. If you are single with $73,900 of taxable income in 2026, your top dollar sits in the 22% bracket, so your marginal rate is 22%. That does not mean you pay 22% on everything.
Worked example: single filer, $73,900 taxable income (2026)
Using the official 2026 single brackets fromIRS Rev. Proc. 2025-32, here is the full bracket-by-bracket math:
| Bracket | Amount taxed | Tax |
|---|---|---|
| 10% on the first $12,400 | $12,400 | $1,240 |
| 12% on $12,400 to $50,400 | $38,000 | $4,560 |
| 22% on $50,400 to $73,900 | $23,500 | $5,170 |
| Total | $73,900 | $10,970 |
Total federal income tax: $10,970. The marginal rate is 22%, because the last dollar fell in the 22% bracket.
Effective rate: your average rate
The effective rate is total tax divided by taxable income. In the example above: $10,970 divided by $73,900 is about 14.8%. So this filer is in the 22% bracket but pays only 14.8% of taxable income overall. The effective rate is always lower than the marginal rate because the early dollars were taxed at 10% and 12%.
Why the difference matters
Two practical consequences. First, a raise can never reduce your take-home pay by pushing you into a higher bracket, because only the dollars above the threshold are taxed at the new rate. Second, deductions save you money at your marginal rate, not your effective rate. A $1,000 pre-tax 401(k) contribution for this filer saves about $220 in federal tax, because it removes income that would have been taxed at 22%.
Try your own numbers in the taxable income estimator, which reports both rates and shows the full bracket-by-bracket breakdown. This page is educational, not tax advice; it ignores credits, FICA, state tax, capital gains, the AMT, the QBI deduction, and phaseouts.