Our experienced accountants and other professionals at Malloy, Montague, Karnowski, Radosevich & Co., P.A. provide a full range of tax preparation services to help businesses and individuals succeed. There are some key tax terms everyone should know. “Marginal Tax Rate” is one of them because it will help you to properly adjust your withholding taxes, or your tax estimates if you're self- employed.
What Is Marginal Tax Rate?
Marginal tax rate is the tax rate incurred on each additional dollar of income. The marginal tax rate for an individual will increase as income rises. This method of taxation taxes people based upon their earnings, with low-income earners being taxed at a lower rate than higher income earners.
Under a marginal tax rate, taxpayers are usually divided into tax brackets or ranges, which determine the rate applied to the taxpayer’s taxable income -- which means income after deductions and exemptions. As income increases, what is earned will be taxed at a higher rate than the first dollar earned.
What Are the Marginal Rates for the 2019 Tax Year?
The new rates, which relate to the tax return you'll file, for instance, as a “married person filing jointly” in 2019, are: 10 percent on the first $19,400 of taxable income, 12 percent on $19,401 to $78,950 of taxable income, 22 percent on $78,951 to $168,400 of taxable income, 24 percent on $168,401 to $321,450 of taxable income, 32 percent on $321,451 to $408,200 of taxable income, 35 percent on $408,201 to $612,350 of taxable income and 37 percent on $612,351 of taxable income and above. These brackets are modified for taxpayers with different filing statuses (e.g. single filers vs. married filers).
Takeaway: Knowing your marginal rates helps you make better decisions about the amount of withholding taxes and estimated payments applicable to you. At MMKR, our professionals provide pro-active and cost-effective tax planning and tax return preparation services to individuals and businesses. Contact us today for an appointment to discuss your marginal rate and its impact on your tax planning.
“SOI Tax Stats - Individual Statistical Tables by Tax Rate and Income Percentile,” IRS Publication (June 2019).
“The New 2019 Federal Income Tax Brackets and Rates,” Forbes (Dec. 5, 2018).
“Making Sense of Income and Tax Terms,” Forbes (Nov 13, 2012).