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You may not know it, but the government charges you different tax rates for different parts of your annual income. You pay less tax on the first dollars of your earnings and more tax on the last dollars of your earnings. For example, if you’re single and your taxable income totaled $50,000 during 2020, you paid federal tax at the rate of 10 percent on the first $9,875, 12 percent on the taxable income above $9,875 up to $40,125, and 22 percent on income above $40,125 up to $50,000.

Your marginal tax rate is the rate of tax that you pay on your last, or so-called highest, dollars of income. In the example of a single person with taxable income of $50,000, that person’s federal marginal tax rate is 22 percent. In other words, he effectively pays a 22 percent federal tax on his last dollars of income — those dollars earned between $40,125 and $50,000. (Don’t forget to factor in the state income taxes that most states assess.)

Knowing your marginal tax rate allows you to quickly calculate the following:

 Any additional taxes that you would pay on additional income

 The amount of taxes that you save if you contribute more money into retirement accounts or reduce your taxable income (for example, if you choose investments that produce tax-free income)

Table 3-1 shows the federal income tax rates for singles and for married households that file jointly.

TABLE 3-1 2020 Federal Income Tax Rates

Singles Taxable Income	Married Filing Jointly Taxable Income	Federal Tax Rate
Less than $9,875	Less than $19,750	10%
$9,875 to $40,125	$19,750 to $80,250	12%
$40,125 to $85,525	$80,250 to $171,050	22%
$85,525 to $163,300	$171,050 to $326,600	24%
$163,300 to $207,350	$326,600 to $414,700	32%
$207,350 to $518,400	$414,700 to $622,050	35%
More than $518,400	More than $622,050	37%