The IRS explains that income is taxed in layers called tax brackets, and the higher rate applies only to the part of income that falls in the new bracket. The marginal rate is the rate on the top layer, so it is different from the average (effective) rate.
For 2026 the federal rates are 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Formula
effective rate = total tax ÷ taxable income
marginal rate = rate of the bracket containing the last dollar
Example
A single filer in 2026 earns $80,000. After the $16,100 standard deduction, taxable income is $63,900. Federal tax is $8,770, an effective rate of 13.7%. The last dollars fall in the 22% bracket ($50,400 to $105,700 for single filers), so the marginal rate is 22%. An extra $1,000 of taxable income adds $220 of tax; a $10,000 pre-tax contribution removes $2,200.
Common mistake
Moving into a higher bracket does not tax all income at the higher rate, only the portion above the threshold.
The guide 401(k) vs Roth 401(k) uses marginal rates to compare account types, and the paycheck calculator shows the tax on a salary.
Educational only, not tax or investment advice.