Marginal vs Effective Tax Rate: How Tax Brackets Work

"If I take a raise I'll be pushed into a higher tax bracket and take home less." It is one of the most common money worries, and it is wrong. Understanding the difference between your marginal tax rate and your effective tax rate clears it up, and it also helps you judge overtime, bonuses, retirement contributions and whether a second income is worth it.

How the brackets work

You do not pay one rate on all your income. Taxable income is split into slices, and each slice is taxed at its own rate. For 2026, a single filer pays 10% on the first $12,400 of taxable income, 12% on the next slice up to $50,400, 22% up to $105,700, and so on.

Taxable income is your income after deductions. Most people take the standard deduction, which is $16,100 for single filers and $32,200 for married couples filing jointly in 2026.

A worked example

Imagine a single filer with $85,000 of wages and no other income or deductions.

1. Subtract the standard deduction: $85,000 − $16,100 = $68,900 of taxable income.
2. Tax the first $12,400 at 10% = $1,240.
3. Tax the next $38,000 (from $12,400 to $50,400) at 12% = $4,560.
4. Tax the remaining $18,500 at 22% = $4,070.
5. Add them up: $9,870 of federal income tax.

View the bracket-by-bracket calculation

Slice of taxable income	Rate	Tax
$12,400	10%	$1,240
$38,000	12%	$4,560
$18,500	22%	$4,070
Total $68,900	Effective 14.3% of taxable income	$9,870

The marginal rate here is 22%, because the next dollar earned is taxed at 22%. The effective rate is $9,870 ÷ $68,900 = 14.3% of taxable income, or 11.6% of the full $85,000 of wages. You can run your own numbers in our Income Tax Calculator.

The raise myth

Suppose that filer gets a $5,000 raise. It is all taxed in the 22% bracket, so the extra tax is $1,100, and $3,900 stays in their pocket. Now suppose the raise pushed them across a bracket line. Take someone with gross wages just below the 22% threshold, at $65,500, who earns $2,000 more and crosses into 22%. Their tax rises by $340 and their after-tax income rises from $59,820 to $61,480, so they are ahead by $1,660. Crossing a line only changes the rate on the dollars above it.

Marginal and effective rate side by side

The marginal rate jumps from bracket to bracket, but the effective rate rises smoothly and stays well below it, because the lower brackets keep applying to the first slices of income no matter how much you earn.

Where the marginal rate actually helps you decide

• Retirement contributions. A pre-tax 401(k) or traditional IRA deduction saves tax at your marginal rate, which is why high earners often benefit more. Our retirement accounts guide compares traditional and Roth.
• Overtime and bonuses. Withholding on a bonus can look high, but it is withholding, not your final tax. The true cost is your marginal rate, plus payroll taxes.
• Side income. The extra tax on freelance income is your marginal rate plus self-employment tax.
• Deductions and credits. A deduction saves tax at your marginal rate. A credit reduces tax dollar for dollar.
• Marriage. Two incomes combined can land in a higher bracket than either alone. Our Marriage Tax Calculator shows the effect.

What this guide leaves out

Federal income tax is only one part of what comes out of a paycheck. Social Security and Medicare payroll taxes (7.65% for most employees, with the employer paying a matching share) apply from the first dollar, and most states add their own income tax. Some income, such as long-term capital gains and qualified dividends, uses a separate set of rates. Our Take-Home Pay Calculator puts the pieces together.

Common questions

Sources and further reading

• IRS: Tax inflation adjustments for tax year 2026
• IRS: Federal income tax rates and brackets

This guide is for general education and is not tax advice. Examples use 2026 federal brackets and the standard deduction only, and ignore credits, state tax and payroll tax. Consult a tax professional about your situation.