What Are the Tax Brackets

• To understand the definition of a marginal tax rate, you have to understand what the tax brackets are and what effect they have on the marginal tax rate. There are six tax brackets: ten percent, fifteen percent, twenty-five percent, twenty-eight percent, thirty-three percent and thirty-five percent.
  
  

Calculating Your Tax Bracket

• Each of the tax brackets has a maximum cutoff at which the tax rate increases.The tax rate of 10 percent has a maximum of $8,375. The 15 percent cutoff is $34,000. The 25 percent cutoff is $82,400. The 28 percent cutoff is $171,850. The 33 percent cutoff is $373,650; any income over this amount will be taxed at 35 percent.
  
  

Calculating Marginal Tax Rate

• An individual earning $82,401 in taxable income will not get taxed at the 28 percent bracket for each taxable dollar earned.The way this works is the the individual will pay 10 percent tax on the first $8,375, 15 percent on the income between $8,375 and $34,000, 25 percent on the income between $34,000 and $82,400, and 28 percent on the final dollar.
  
  

What is the Marginal Tax Rate

• The Marginal Tax Rate is equal to the rate at which the last taxable dollar is earned. In the example above, the individuals' marginal tax rate would be 28%, even if it's only on the last dollar earned.
  
  

Marginal Tax Rates and Investment

• If an individual expects a return on her investment that would bump her into the next higher tax bracket, resulting in a higher marginal tax rate, the return on the investment would have to equal more than the increased taxes, or else the investment would be a loss.