The Short Answer

What's the Difference Between Marginal and Effective Tax Rates?

Karen Wallace

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

Answer: In order to explain the difference between "marginal" and "effective" tax rates, I should first dispel a common misconception: All of the income you make is not taxed at one rate. For example, let's say you are a single filer who makes $50,000 per year, which puts you in the 25% tax bracket. If you paid tax at a flat 25% rate on your income, you would owe $12,500. But if you look up $50,000 in the IRS' 2017 1040 Tax Tables, you'll find that you owe less than that--you owe $8,245, to be exact. Why is that?