{"id":2948,"date":"2009-03-11T05:00:31","date_gmt":"2009-03-11T12:00:31","guid":{"rendered":"http:\/\/getrichslowly.org\/blog\/?p=2948"},"modified":"2019-10-09T23:18:32","modified_gmt":"2019-10-10T06:18:32","slug":"how-marginal-tax-rates-work","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/how-marginal-tax-rates-work\/","title":{"rendered":"How marginal tax rates work"},"content":{"rendered":"

Yesterday I hosted a guest article about the mortagage-interest tax deduction<\/a>. As part of his argument that this tax break should not be used to justify buying a house, CJ from Wise Money Matters looked at the savings by tax brackets. What CJ did not consider (and what escaped my notice, and even that of my accountant) was the concept of marginal tax rates.<\/p>\n

Although I was mortified to have let such a blatant error pass through editing, I decided to turn this mistake into a positive experience. I spent some time reading about marginal tax rates, and today I’m going to share what I learned.<\/p>\n

Marginal Tax Rates<\/h2>\n

Let’s start by looking at the 2009 U.S. federal income tax brackets for ordinary income. (These are the rates we’ll use when filing our tax returns in 2010.) For the sake of simplicity, we’ll only examine the rates for single filers and for those who are married filing jointly. The same principle applies to all filers.<\/p>\n

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You can also view the 2010 federal income tax brackets and a discussion on 2011 federal income tax rates.<\/center>Based on this table, if Gillian is single and has taxable income of $100,000 in 2009, her marginal tax rate<\/b> will be 28%. This does not<\/i> mean that all of her income is taxed at 28%. She will not owe $28,000 in taxes. Only the top portion of her income is taxed at the highest level.<\/b><\/p>\n

Gillian’s income is actually taxed progressively, at each bracket up to her marginal rate. Does that sound like gibberish? It’s actually not so bad. Using the example above:<\/p>\n