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Updated by Media Excerpts on Apr 07, 2020
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Issues - Economy - Taxes

[3/31/13] Policy Basics: Marginal and Average Tax Rates

(CBPP) -- Misunderstandings about two different types of tax rates often create confusion in discussions about taxes.

A taxpayer's average tax rate (or effective tax rate) is the share of income that he or she pays in taxes.
By contrast, a taxpayer's marginal tax rate is the tax rate imposed on his or her last dollar of income.

As an example, the graph below shows a married couple with two children earning a combined salary of $110,000. They face a top marginal tax rate of 25 percent, so they would commonly be referred to as "being in the 25 percent bracket." But their average tax rate -- the share of their salary that they pay in taxes -- is only 9.2 percent, as explained below.

An individual's average tax rate tends to be much lower than his or her marginal tax rate for three main reasons.
1. Because of exemptions and deductions, not all income is subject to taxation.
2. The top marginal tax rate applies only to a portion of taxable income.
3. Credits directly reduce the amount of taxes a filer owes.

[10/30/14] IRS Announces 2015 Tax Brackets, Standard Deduction Amounts And More

(Forbes) -- These are the applicable numbers for the tax year 2015 – in other words, effective January 1, 2015. They are NOT the numbers and rates that you’ll use to prepare your 2014 tax returns in 2015. These numbers and rates are those you’ll use to prepare your 2015 tax returns in 2016.