Marginal tax rate and average tax rate explained. How does a marginal tax rate apply to your taxable income, and how do you calculate your average #tax rate. Let’s work through those questions with some examples.

Many countries in the world use tax brackets and a progressive tax rate system. A tax bracket system means that you “slice” your taxable income into pieces, and apply a different tax rate to each of the tax brackets. A progressive tax rate system means that the tax rate increases as the taxable amount increases. The term "progressive" refers to the way the tax rate progresses from low to high. In a progressive income tax system, the average tax rate is always lower than the marginal tax rate, but if you are a big earner, then they are getting very close.

⏱️TIMESTAMPS⏱️
0:00 Introduction
0:14 Tax brackets and progressive tax rate
0:39 Tax bracket example
0:59 Marginal tax rate and average tax rate example
1:53 Marginal tax rate definition
2:15 Taxable income into tax brackets
3:08 Marginal tax on salary increase
3:57 Marginal tax rate on deductible
5:03 How close can marginal tax rate and average tax rate get

Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and leadership enjoyable and easier to understand. Learn the business and #accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investing decisions. Philip delivers #financetraining in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!