Marginal Tax Rate

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Marginal tax rate is a percentage of tax that a person incurs on the next dollar of income, as opposed to flat taxes that charge the same rate regardless of one’s income. A system that uses marginal tax rate requires a taxpayer with a higher income to pay a greater percentage of tax as specified in the income tax bracket. This way, the system seeks to place a higher tax burden on households with greater income and protects low-income taxpayers.

As of 2020, New York has eight marginal income tax brackets, ranging from 4% for the lowest income bracket to 8.82% for the highest bracket. Wider income brackets apply to married couples who file jointly. For example, an individual who independently files one’s tax return will pay 4% for earnings between $0 and $8,500, while a married couple who files jointly will pay the same rate for earnings between $0 and $17,150. In California, the ten income tax brackets for tax year 2019 vary from 1% to 13.3%.

Since the Tax Cuts and Jobs Act of 2017, the Internal Revenue Service (IRS) has used the Chained Consumer Price Index  (C-CPI) instead of the Consumer Price Index (CPI) to calculate the cost-of-living adjustments for each calendar year. For unmarried individuals, the federal income tax brackets for tax year 2020 range from 10% for income up to $9,875 and 37% for income greater than $518,400.

[Last updated in June of 2020 by the Wex Definitions Team]