A marginal tax rate is the rate of taxation on an additional dollar of income earned. It’s calculated by dividing the amount of additional taxes due on the extra dollar by the extra dollar itself. For example, if a person earns an extra $100 and has to pay an additional $25 in taxes, their marginal tax rate would be 25%.
Marginal rates are based on income levels and are used to determine how much money people owe in taxes after filing returns each year.