How is the marginal tax rate calculated

Marginal tax rate



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Financial terms simply explained

The marginal tax rate is a specific, income-related tax rate for income tax.

The marginal tax rate indicates which income tax rate immediately above of a taxable income is applied, more precisely to the first euro above the respective taxable income. Using the marginal tax rate, it is possible to estimate how much additional (taxable) income is taxed and thus what gain could be achieved by increasing the corresponding income, or how much of it would be deducted from income tax.


The background to this is the progressive tariff structure of income tax. Different income areas are taxed differently; lower lower and higher higher. In the event of an increase in income, the newly added share of income is charged with the highest tax rate. The marginal tax rate is a measure of the minimum tax rate to be expected here (depending on how much the income is increased).

The calculation is based on full euros (and not, for example, over the first cent above the taxable income) because the taxable income is also rounded down to a full euro for tax purposes.

The marginal tax rate is always higher than the average income tax rate.

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