Marginal Tax Rate

The tax rate applied to the last dollar of income earned. In a progressive system, marginal rates increase as income rises. Does not apply to your entire income — only the income in that bracket.

A common misconception is that moving into a higher bracket taxes all of your income at the higher rate. In reality only the dollars inside that bracket are taxed at the marginal rate, which is why your effective (average) rate is always lower than your marginal rate.