Marginal Rate

What does it mean?

Marginal Rate or the marginal tax rate refers to the percentage of your taxable income above a certain defined threshold. It is only applied for each tax bracket that you qualify for. The more income you make, the more taxes you owe as it is simply a percentage of your actual income. 

Points to remember

• Tax rates are applied only to amounts over a particular threshold and not the entire income. 
• Having a knowledge of the workings of the marginal tax rate system assists in financial planning for the long term.

Example: A person earning in the bracket of 250000 to 500000 would have to pay 5% taxes only on the earnings between 250000 to 500000, which means the first 250000 is not taxable.