Effective vs Marginal Tax Rate: What’s the Difference?

“I’m in the 22% tax bracket.” It’s one of the most common — and most misunderstood — statements in personal finance. Being in the 22% bracket does not mean you pay 22% of your income in tax. Understanding why comes down to two different numbers: your marginal rate and your effective rate.

Marginal rate: the tax on your next dollar

Income tax is progressive, meaning it’s charged in layers. For a single US filer in 2025, the first slice of taxable income is taxed at 10%, the next at 12%, then 22%, and so on. Your marginal rate is simply the rate that applies to your last dollar earned — the top bracket your income reaches.

This is the number that matters for decisions: how much of a raise you’ll keep, or how much tax a $1,000 pre-tax 401(k) contribution saves you. If your marginal rate is 22%, an extra $1,000 of salary nets you $780 (before state tax and FICA).

Effective rate: your average across everything

Your effective rate is your total tax divided by your gross income — the true average. Because the early layers of income are taxed at 10% and 12%, your effective rate is always lower than your marginal rate.

Why both numbers matter

• Use your marginal rate to evaluate a decision at the edge — a raise, a bonus, an extra retirement contribution.
• Use your effective rate to understand your overall tax burden and budget.

A practical upshot: pre-tax contributions save you tax at your marginal rate (the high number), which is exactly why they’re so efficient — more on that in our guide to how a 401(k) affects your take-home pay.

See your own rates

Our calculator shows both your effective and marginal rates side by side for any salary, so you can see exactly where your next dollar — and your average — actually land.