The amount you pay in taxes is determined by your tax rate. Your placement within one of the seven current tax brackets is dependent on your income. The progressive tax system of the United States makes it so that the more you make, the more you are taxed. However, your income falling into a particular tax bracket does not necessarily mean that your entire income will be taxed. This brings about the importance of marginal and effective tax rates, which will be covered in this section.
Your marginal tax bracket is the percentage taxed on the last dollar you earn. For example, if you are filing single and have $72,000 of taxable income, your marginal tax rate is 25%, as $72,000 falls within the 25% marginal tax bracket for single status filings.
The effective tax rate is the percent of their income that an individual or a corporation pays in taxes. The effective tax rate for individuals is the average rate at which their earned income, such as wages, and unearned income, such as stock dividends, are taxed.