Marginal Tax Rate Definition

A marginal tax rate is the rate at which tax is incurred on an additional dollar of income. In the United States, the federal marginal tax rate for an individual increases as income rises. This method of taxation, known as progressive taxation, aims to tax individuals based upon their earnings, with low-income earners being taxed at a lower rate than higher-income earners. While many believe this is the most equitable method of taxation, many others believe this discourages business investment by removing the incentive to work harder.