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Marginal Tax Rate

The marginal rate is the rate of taxation on the last dollar earned. In the United States,
income taxes are progressive, meaning that as income increases, tax rates increase. Under 2006 law, for example, the rate on taxable income up to $7,500 is 10 percent, and the rate on taxable income between $7,500 and $30,650 is 15 percent. A person with $20,000 in taxable income would thus pay 10 percent on the first $7,500 of income and 15 percent on the remaining $12,500. The person’s marginal tax rate (or the highest rate paid) would be 15 percent.