What's the Difference Between Your Effective Tax Rate and Your Marginal Tax Rate?

Your effective tax rate and your marginal tax rate both describe how you're taxed, but they measure very different things. Your marginal tax rate is the rate that applies to your next dollar of income — it's the top bracket you fall into based on your total taxable income. Your effective tax rate is the average rate you pay across all of your income, calculated by dividing your total tax bill by your total taxable income. Because the U.S. uses a progressive tax system where different portions of your income are taxed at different rates, your effective rate is almost always lower than your marginal rate. For example, a single filer in the 22% bracket in 2024 doesn't pay 22% on all their income — they pay lower rates on the first portions, bringing their effective rate down significantly.