# Visual Guide to Understanding Marginal Tax Rates

Posted In: Money

##### What is a marginal tax rate?

There is a fair amount of confusion about what a marginal tax rate is and how it affects how much tax you would owe the government on a certain amount of income. These graphs are here to help you better understand the difference between a marginal and average tax rate and to easily calculate these rates for specific examples in the US context. This tool only looks at US Federal Income taxes and ignores state, local and Social Security/Medicare taxes.

Marginal tax rates are the rate at which an additional dollar of income will be taxed at. There are different tax brackets (each with its own marginal rate) depending on which dollar of income you are looking at. This is very different from the Average (or effective) tax rate that is the result of applying these marginal tax rates across all of your income.

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Instructions for using the visual tax calculator:

• Select filing status: Single, Married Filing Jointly or Head of Household. For more info on these filing categories see the IRS website
• Select percentage of regular income vs capital gains income. Regular income is wage or employment income and is taxed at a higher rate than capital gains income. Capital gains income is typically investment income from the sale of stocks or dividends and taxed at a lower rate than regular income.
• Move your cursor or click on the graph to select a specific income Make sure you note that the x-axis is a logarithmic-scale, meaning that income grows exponentially as you move to the right.
• Choose your graph preference One graph (Individual Tax Brackets) shows the individual tax brackets and how much of your income is taxed at the different marginal rates. The other graph (Aggregate Rates) shows the net result of applying the different rates to get your effective rate.
One of the most interesting things is to vary the proportion of regular income vs capital gains taxes. Generally, wealthier households earn a greater fraction of their income from capital gains and as a result of the lower tax rates on capital gains, these household pay a lower effective tax rate than those making an order of magnitude less in overall income.

Here are two tables that lists the marginal tax brackets in the United States in 2019 that form the basis of the calculations in the calculator. 2018’s numbers are pretty similar.

US Tax Brackets and Rates for 2019
Rate Single
Taxable Income Over
Married Filing Joint
Taxable Income Over
10% $0$0 $0 12%$9,700 $19,400$13,850
22% $39,475$78,950 $52,850 24%$84,200 $168,400$84,200
32% $160,725$321,450 $160,700 35%$204,100 $408,200$204,100
37% $510,300$612,350 $510,300 You can see that tax rates are much lower for capital gains in the table below than for regular income (table above). Capital Gains Brackets for 2019 Single Capital Gains Over Married Filing Jointly Capital Gains Over Heads of Households Capital Gains Over 0%$0 $0$0
15% $39,375$78,750 $52,750 20%$434,550 $488,850$461,700
For those not visually inclined, here is a written description of how to apply marginal tax rates. The first thing to note is that the income shown here in the graphs is taxable income, which simply speaking is your gross income with deductions removed. The standard deduction for 2019 range from $12,200 for Single filers to$24,400 for Married filers.
• If you are single, all of your regular taxable income between 0 and $9,700 is taxed at a 10% rate. This means that your all of your gross income below$12,200 is not taxed and your gross income between $12,200 and$21,900 is taxed at 10%.
• If you have more income, you move up a marginal tax bracket. Any taxable income in excess of $9,700 but below$39,475 will be taxed at the 12% rate. It is important to note that not all of your income is taxed at the marginal rate, just the income between these amounts.