Skip to Content
The Short Answer

Tax Bracketology: Understanding Marginal vs. Effective Rates

And which one you should pay more attention to.

Question: What is the difference between marginal and effective tax rates, and which is more important?

Answer: The most straightforward way to think of the difference is that your marginal tax rate applies only to the last dollars you make over the course of the tax year while the effective tax rate represents the average rate you pay on all the money you make during the year.