Difference Between Similar Terms and Objects

Difference Between Average Tax Rate and Marginal Tax Rate

taxAverage Tax Rate vs Marginal Tax Rate

It is important to understand the difference between average tax rate and marginal tax rate so you can make an effective tax plan. If you know how to differentiate average tax rate with marginal tax rate, then you will have an easier time in making your payable taxes lower.

First of all, calculating average tax rate is simpler than calculating the marginal tax rate. That is because with average tax rate, you will only get the average between your tax liability and your total taxable income. In simple terms, it is represented as tax liability divided by taxable income. This is a fairly straightforward tax calculation.

Meanwhile, calculations for marginal tax rate follow a specific set of tax table. Your tax rate therefore will depend primarily on your current level of income. So the higher you earn, you will also belong to higher income tax bracket. But if your income is lower, your tax rate will be lower also.

Marginal tax rate may change overtime. As your income or consumption increases or decreases, the marginal tax rate will also be adjusted based on your final taxable income. On the other hand, average tax rate represent the actual percentage of your income that goes into taxes.

Obviously, calculations for average tax rate will be lower because it incorporates the amount of taxes you will pay at all levels of income. Marginal tax rate is generally used on progressive taxation. You will get different tax rates based on your current level of income.

It is important to grasp the essentials of average tax rate and marginal tax rate so you can make a good tax plan. With marginal tax rate, you will pay more taxes as your income increases. But you also pay less tax if your income is lower.

Sharing is caring!

Search DifferenceBetween.net :

Email This Post Email This Post : If you like this article or our site. Please spread the word. Share it with your friends/family.

Leave a Response

Please note: comment moderation is enabled and may delay your comment. There is no need to resubmit your comment.

Articles on DifferenceBetween.net are general information, and are not intended to substitute for professional advice. The information is "AS IS", "WITH ALL FAULTS". User assumes all risk of use, damage, or injury. You agree that we have no liability for any damages.

See more about : , , ,
Protected by Copyscape Plagiarism Finder