Effective vs Marginal Rate Calculator

How it is calculated

The tool first computes tax in two slices, tax = min(income, limit) × rate1 ÷ 100 + max(income − limit, 0) × rate2 ÷ 100, then reports two different rates. effective_rate = tax ÷ income × 100 is the average rate on all your taxable income. The marginal_rate is the rate on your next unit of income: the second rate if income is above the limit, otherwise the first (income exactly at the limit counts as the first bracket). gap = marginal − effective, in percentage points, even though it is printed with a % sign. Income and limit are money amounts and the rates are percentages. For any income inside the first bracket the gap is 0. Income, limit and rates cannot be negative, and a rate above 100 shows no result. The brackets are whatever you type; no country's tables, deductions or credits are built in.

Common mistakes

• Using the marginal rate to estimate the whole tax bill. Here 24% of $120,000 would be $28,800, but the real tax is $21,800 because the first $50,000 is taxed at 10%.
• Reading the gap as a percent of tax. It is a difference in percentage points between two rates (5.83), not a relative change.
• Entering gross income instead of taxable income. Deductions and allowances should already be removed, or both rates will be overstated.
• Typing the rates as decimals (0.24) instead of percentages (24). The tool accepts them, but both rates come out a hundred times too small (0.18% and 0.24% here).
• Swapping the two rates. If the upper bracket is entered lower than the first, the marginal rate falls below the effective rate and the gap turns negative, which no progressive system produces.