Two rates, two different questions
The effective rate answers “what share of my income went to tax?” The marginal rate answers “what happens to the next dollar?” Confusing them is the most expensive small mistake in personal tax planning, because almost every decision you make is a marginal decision.
Consider a single filer with $85,000 of taxable income in 2026. Their federal tax is $13,412, so their effective rate is 15.78 percent. Their marginal rate is 22 percent. If they are deciding whether to defer $5,000 into a traditional 401(k), the deferral is worth 5,000 × 0.22 = $1,100 of federal tax, not 5,000 × 0.1578 = $789. Using the effective rate underprices the deduction by $311.
The reverse error is just as common. Someone quoting “I pay 22 percent in federal tax” is overstating their bill by 6.22 points, or $5,288 on the same income. The bracket you reach is not the rate you pay, because the brackets below it are charged at lower rates. The progressive tax bracket calculator shows that split slice by slice.
There is also a third rate almost nobody computes, and it is the one that matters most: the combined marginal rate. A W-2 employee's next dollar of wages is hit by federal income tax, state income tax and 7.65 percent of employee FICA all at once. At 22 percent federal and a 5 percent state rate, that dollar is taxed at 34.65 percent — half again as much as the federal bracket suggests.
How each rate is derived
The effective rate is a division. Total tax divided by income. The only real decision is the denominator, and it changes the answer materially: dividing by taxable income gives a higher rate than dividing by gross income, because gross income is larger. This calculator reports both, labelled, so there is no ambiguity about which one you are quoting. Public statistics usually use AGI; comparisons across households usually use a broader income measure still.
The marginal rate is a derivative. Formally it is the change in tax for a change in income, and because the graduated schedule is piecewise linear the derivative is just the statutory rate of the bracket you are sitting in. This calculator computes it as an actual difference quotient over one dollar rather than by looking up a bracket, which handles the threshold case correctly: at income exactly equal to a bracket edge, the next dollar belongs to the higher bracket and the difference quotient returns the higher rate.
The payroll component depends on what the dollar is. For W-2 wages the employee side is 6.2 percent Social Security up to the wage base plus 1.45 percent Medicare on everything, and an extra 0.9 percent additional Medicare tax above $200,000 of wages ($250,000 joint, $125,000 separate). For self-employment profit the same taxes are charged under IRC §1401 at double the employee rate, but on only 92.35 percent of net earnings, which puts the marginal rate at 15.3 × 0.9235 = 14.12955 points below the wage base. For investment income there is no payroll tax, but the 3.8 percent net investment income tax applies above the same statutory thresholds.
The combined rate is a sum, with a caveat. Adding federal, state and payroll rates ignores two interactions: state income tax is an itemised deduction subject to the SALT cap, and half of self-employment tax is deductible against federal income tax. Both make the true combined burden slightly lower than the sum. The sum is the right first answer; the interactions are second-order and depend on facts this calculator does not ask for.
Worked example: $85,000 taxable, $101,100 gross, 5 percent state, W-2 wages
Single filer, tax year 2026, wages only, living in a state with a 5 percent marginal rate.
- Federal tax. 0.10 × 12,400 = $1,240.00; 0.12 × (50,400 − 12,400) = 0.12 × 38,000 = $4,560.00; 0.22 × (85,000 − 50,400) = 0.22 × 34,600 = $7,612.00. Total $13,412.00.
- Effective rate on taxable income. 13,412 ÷ 85,000 = 15.78 percent.
- Effective rate on gross income. 13,412 ÷ 101,100 = 13.27 percent. Same tax, larger denominator, lower rate — which is why the denominator has to be stated.
- Federal marginal rate. $85,001 is still below the $105,700 edge of the 22 percent bracket, so the next dollar is taxed at 22 percent.
- Payroll on the next dollar. Gross wages of $101,100 are below the 2026 Social Security wage base of $184,500, so both components apply: 6.2 + 1.45 = 7.65 percent.
- Combined marginal rate. 22 + 5 + 7.65 = 34.65 percent.
Read the two headline numbers together: this household pays 15.78 percent of its taxable income in federal tax, but keeps only 65.35 cents of the next dollar it earns. A $3,000 bonus nets $1,960.50. A $3,000 traditional 401(k) deferral saves $810 of federal and state income tax — payroll tax is not avoided by a 401(k) deferral, which is exactly why the combined rate has to be broken into its parts rather than applied whole.
How to read the two rates
The marginal rate is never below the effective rate under a graduated schedule. That is not an observation, it is arithmetic: the effective rate is a weighted average of the bracket rates you have touched, all of which are at or below the rate on your next dollar. The gap column in the table below is therefore always zero or positive, and it is zero only while you are still inside the first bracket.
The gap widens with income, then narrows again at the very top. For a 2026 single filer the gap is 0.99 points at $25,000 of taxable income, 5.29 points at $100,000, and 10.41 points at $300,000. Above the top bracket edge it starts closing again, because more and more of the income is taxed at the top rate: at $50 million the effective rate is 36.91 percent against a 37 percent marginal rate, a gap of 0.09 points.
Use the combined marginal rate for every trade-off. Whether to take overtime, whether a Roth conversion is cheap this year, what a deductible contribution saves, what a side contract nets, whether a second earner's job pays for childcare — all of these are priced at the combined marginal rate, not at the federal bracket. And be careful which components actually apply: a traditional 401(k) deferral avoids federal and state income tax but not FICA, while a Section 125 cafeteria plan premium avoids all three.
Beware effective marginal rates the schedule does not show. Credit phase-outs create implicit marginal rates that can exceed the statutory ones. Losing a credit at 5 cents per dollar of income adds 5 points to your true marginal rate over the phase-out range. The rate schedule is continuous; the credit rules that sit on top of it are not always.
Self-employment changes the shape. At $60,000 of profit, a sole proprietor's combined rate is 22 percent federal plus 14.13 points of SE tax before any state tax — 36.13 percent, higher than a W-2 employee at the same income, because the employee's employer pays half the payroll tax separately. Size that half with the self-employment tax calculator.
Federal marginal and effective rates by taxable income, 2026 single filer
| Taxable income | Federal tax | Effective rate | Marginal rate | Gap |
|---|---|---|---|---|
| $25,000.000000 | $2,752.000000 | 11.01% | 12% | 0.99 |
| $50,000.000000 | $5,752.000000 | 11.50% | 12% | 0.50 |
| $75,000.000000 | $11,212.000000 | 14.95% | 22% | 7.05 |
| $100,000.000000 | $16,712.000000 | 16.71% | 22% | 5.29 |
| $150,000.000000 | $28,598.000000 | 19.07% | 24% | 4.93 |
| $200,000.000000 | $40,598.000000 | 20.30% | 24% | 3.70 |
| $300,000.000000 | $73,769.000000 | 24.59% | 35% | 10.41 |
| $500,000.000000 | $143,769.000000 | 28.75% | 35% | 6.25 |
Every row is produced by the calculator's own schedule. Set the status and year above to see the same sweep for a different filer.
Mistakes that distort one rate or the other
- Quoting an effective rate without naming the denominator. The same tax bill gives 15.78 percent on taxable income and 13.27 percent on gross income in the example above. Both are correct; only one answers the question being asked.
- Pricing a deduction at the effective rate. Deductions come off the top slice, so they are always worth the marginal rate. The only exception is a deduction large enough to cross a bracket edge, in which case part of it saves at each rate.
- Forgetting payroll tax on wage income. Employee FICA adds 7.65 points below the wage base. Leaving it out understates the true cost of a wage dollar by more than a third of the federal bracket at 22 percent.
- Adding the employer's FICA share to your own marginal rate. The employer pays 7.65 percent separately. Economists argue the incidence falls on the worker, but it is not withheld from your pay and does not belong in a take-home calculation.
- Applying the federal marginal rate to a long-term capital gain. Gains ride a separate 0/15/20 percent schedule, so the marginal rate on a gain dollar is usually 15 or 20 points, plus 3.8 if the net investment income tax applies.
- Using a state's top rate when your income does not reach it. Most states with an income tax are themselves graduated. Enter the marginal rate your income actually reaches, not the headline top rate.
Why the self-employment component reads 14.13 and not 15.3
Self-employment tax is charged on net earnings, which are defined as 92.35 percent of net profit. The 7.65 percent haircut exists so that a sole proprietor gets the same effective exclusion an employee gets from the employer half of FICA not being wages. So the marginal SE tax on one more dollar of profit is 0.153 × 0.9235 = 0.1412955, or 14.12955 points, until net earnings reach the Social Security wage base. Above that only the Medicare part continues, at 0.029 × 0.9235 = 2.67815 points, plus 0.9 × 0.9235 = 0.83115 points of additional Medicare tax above the statutory threshold.
Where these rates come from and what else uses them
The two rates trace back to the structure of a graduated tax. Any tax whose rates are non-decreasing in income produces an effective rate that rises with income and stays below the top rate reached — that is the formal definition of progressivity, and it is why the effective rate curve in the chart above sits under the marginal step function everywhere.
The rates feed directly into three other calculations. Withholding tables are built to approximate your effective rate across the year so that the final balance is near zero; check the outcome with the income tax refund estimator. Estimated tax instalments use the projected annual liability, which is an effective-rate quantity; see the quarterly estimated tax calculator. And any asset-sale decision is priced at the capital gains marginal rate rather than the ordinary one — the capital gains tax calculator stacks the gain on top of your ordinary income to find it.
If you are building the taxable income figure this page starts from, do that first with the taxable income calculator. A marginal rate computed from gross pay rather than taxable income will frequently be one whole bracket too high.
One historical note that explains the size of the modern gap: the United States had 25 brackets in 1980 with a top rate of 70 percent, and has seven today with a top rate of 37 percent. Fewer, wider brackets mean the effective rate climbs more slowly through the middle of the distribution, which is precisely why the marginal-effective gap is largest for upper-middle incomes rather than at the very top.