Tax bracket versus marginal tax rate versus effective tax rate
What is the difference between your "tax bracket" and your "marginal tax rate" and your "effective tax rate"?
First we have to discuss what "taxable income" is:
Taxable income is your Adjusted Gross Income (AGI) less your exemptions and either Standard Deduction or Itemized Deductions. Because of the exemptions and standard deductions, the first $10,000 or so of your AGI is not taxed at all (for a single person). In any case, remember that you are taxed on your "taxable income", not on your adjusted gross income.
Second, look at the Tax Rate Schedules on page 266 in IRS Publication 17 (https://www.irs.gov/pub/irs-pdf/p17.pdf). You will see here that for someone filing Single, that the first $9,325 of taxable income is taxed at 10%, the next $28,625 is taxed at 15%, the next $53,950 is taxed at 25% and so on. This is your "tax bracket". -
Third, your marginal tax rate refers to how much you will owe for each additional dollar that you report in taxable income - for example, if you are filing Single and have taxable income of $30,000, you are in the 15% tax bracket. (this means that for each additional dollar you make, you pay $0.15 more in tax - until you reach the next tax bracket, of course). That is, your marginal tax rate is the same as your tax bracket.
Fourth, your effective tax rate is not the same as your marginal tax rate. Why? Remember that your marginal tax rate is the additional tax on an additional dollar of taxable income. But the effective tax rate is the ratio of the total tax you owe and your taxable income. For example, if you are filing Single and have $30,000 in taxable income, your tax due is $4,038. $4,038 divided by $30,000 is 13.46%.
Why isn't my tax for $30,000 15% of my taxable income? Because the first $9,325 of my taxable income was taxed at 10%. Thus, the 13.46% effective tax rate is the result of blending a 10% tax rate with a 15% tax rate, based on the number of dollars in each tax bracket.
This means that for each income amount (within a small spread), the effective tax rate is actually unique, as it slowly increases with income. However, it would be very difficult to explain how to calculate this to the average taxpayer, which is why the Tax Tables are provided to enable the taxpayer to directly find the tax due rather than calculating it.