How many of us count our taxes? The truth is, hardly if any.
In the eyes of the government, not all income sources are treated equally.
For example, when you are working for your boss as an employee and you duly pay your taxes at the end of the year.
This has been going on for several years.
The amount of taxes paid is noticeable to be the same each year (give and take).
Therefore, it will appear as though all that earned income is being taxed equally each time.
But, here is the shocking fact.
You pay less tax on your first dollars of earnings and more tax on your last dollars.
Let us assume you are single and your taxable income sums up to $45,000 during 2010.
Then you pay federal tax at the rate of 10 percent on the first $8,350 of taxable income.
The other 15% imposed on income between $8,350 and $33,950.
25% is charged on income from $33,950 to $45,000.
Marginal tax rate is the rate of tax you pay on your last (or highest) amount of income.
In the earlier described example, the person is being taxed with a marginal tax rate of 25% with taxable income of $45,000.
This would mean he or she is paying 25% federal tax on her last dollars of income (more than $33,950).
You have to understand the concept of marginal tax rate.
It is a very powerful concept.
If you do not know about this, read this article again and do your proper research one more time.
It can allow you to calculate all additional taxes you have to pay on additional income.
On a side note, you can delight in quantifying the amount of taxes you save by reducing your taxable income, either by decreasing your income or by increasing your deductions.
As you can see, there is simply no excuse for not learning how to count these simple mathematic concepts.
This is especially after working so hard for a year of income.
Be aware that you are paying for state income taxes also, other than federal income tax.
For the majority, this is true.
But for citizens of the US living in states like Alaska, Nevada, Texas, Wyoming, Florida, South Dakota, Washington are not charged for state income tax.
Be sure to read up on your state laws for matters pertaining to taxes.
In summary, your total marginal rate consists of federal and state tax rates.