Glossary term
Marginal tax rate
A marginal tax rate is the estimated tax rate applied to the next dollar of a stated income type.
Plain meaning
What marginal tax rate means
Marginal rate is about the next dollar, not the whole income amount. It is different from an average tax rate, which compares total tax to an income base.
Formula role
Why income type matters
OpenBook marginal-rate calculators estimate the tax effect of adding a stated amount of income to a taxable-income base. The calculator compares tax before and after the additional income and expresses the change as a rate.
Salary, interest, capital gains, eligible dividends, and non-eligible dividends can have different marginal tax effects because taxable income, inclusions, gross-ups, credits, and provincial or territorial rules can differ.
Common confusion
Marginal is not average
A marginal rate is not the rate paid on all income. It is the estimated rate on the next dollar or selected additional amount. The average tax rate compares total tax with an income amount, while effective tax rate depends on the stated denominator.
Primary references
These links give the official tax-rate context behind this term.