Hello! While I was reading up on the definitions of marginal tax rate vs average

Question

Hello! While I was reading up on the definitions of marginal tax rate vs average tax rate, I saw that the definition of marginal tax rate according to the book was defined as the amount of tax payable on the next dollar earned. So if i was at the very edge at the bracket, would my marginal tax rate not be what I am currently paying?

For example:

Taxable Income | Tax Rate

$0 - 50,000 15%
$50,001 - 75,000 25%
$75,001 - 100,000 34%

If those were the marginal tax rates, and I made exactly $75,000 on the dot, wouldn't my marginal tax rate be 25%?

But according to the book's definition of marginal tax rate (amount of tax payable on the NEXT DOLLAR earned), wouldn't my marginal tax rate be 34% as the next dollar earned would be $75,001 according to the example.

Thank you!

Explanation / Answer

Hi, as per the example shared, the Marginal tax rate in this would be 34%. As your income is exactly on the upper limit of bracket, for the next dollar earned, it will fall under upper bracket of 34%.

Hence, marginal interest rate is always basis the tax rate that will be applicable for next dollar earned.

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