How Progressive Tax Brackets Work

Taxable income is gross minus the standard deduction, then each dollar is taxed at the rate of the bracket it lands in (progressive "buckets"). The marginal rate applies only to the last dollar earned; the effective rate is total tax divided by gross income, which is always lower.

Worked Example

A single filer earning $85,000 pays $10,541 in 2024 federal tax: taxable income of $70,400 spans the 10%, 12%, and 22% brackets. Marginal rate is 22%, but the effective rate is just 12.4%.

Why the Marginal Rate Matters

Raises and side income are taxed at your marginal rate, so knowing it helps you estimate the true value of extra earnings, decide between Roth and traditional retirement accounts, and avoid sticker shock on bonuses. The effective rate is what you actually pay overall — useful for budgeting your total tax burden.