Marginal tax rate

Your marginal tax rate is the rate you pay on the next unit of income. It is different from your average (effective) rate, which is total tax divided by total income. The IRS puts it simply: when you move into a higher bracket, “you pay the higher rate only on the part that’s in the new tax bracket”.

UK example (2026/27): a salary rise from £100,000 to £110,000 adds £10,000 of pay but only £3,800 of take-home pay. That is a 62% marginal rate: 40% Income Tax, 2% National Insurance, and another 20% because you lose £1 of Personal Allowance for every £2 over £100,000.

US example (2026): a single filer with $60,000 of wages and the $16,100 standard deduction has $43,900 of taxable income. Under the IRS 2026 brackets, income from $12,400 to $50,400 is taxed at 12%, so the next dollar of federal tax is at 12%, plus 7.65% FICA. The average federal income tax rate on that pay is much lower: $5,020 on $60,000, or 8.4%.

Your marginal rate decides how much of a pay rise or bonus you keep. Test a rise in the pay rise calculator.