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Personal Finance Terms 101: Marginal Tax Rate

Watch more Personal Finance Terms 101 videos: Subscribe to Howcast's YouTube Channel - Learn about marginal tax rates in this personal finance terms video tutorial. Howcast uploads the highest quality how-to videos daily! Be sure to check out our playlists for guides that interest you: Subscribe to Howcast's other YouTube Channels: Howcast Health Channel - Howcast Video Games Channel - Howcast Tech Channel - Howcast Food Channel - Howcast Arts & Recreation Channel - Howcast Sports & Fitness Channel - Howcast Personal Care & Style Channel - Howcast empowers people with engaging, useful how-to information wherever, whenever they need to know how. Emphasizing high-quality instructional videos, Howcast brings you experts who provide accurate information in easy-to-follow tutorials on everything from makeup, hairstyling, nail art design, and soccer to parkour, skateboarding, dancing, kissing, and much, much more. Your marginal tax bracket is really important and I want to take just a few minutes to tell you what exactly it is. In our country we have a graduated tax rate and what that means is there are several different tax rates that may apply to your income. So for example maybe the first set of money I earn is taxed at the ten percent rate, and amounts above that are taxed at a fifteen percent rate, and so on, all the way up to our highest tax brackets. And that's what I mean by graduated, you're paying a little tax on different amounts depending on how much you earn. And the more you earn, the higher the tax bracket you're in. The marginal tax bracket is the highest tax rate that applies to some of your income. So for example, if I am paying a certain ten percent tax on the first group of income I make, and fifteen percent on amounts above that, and twenty-eight percent on amounts above that, twenty-eight percent would be my marginal tax bracket, the highest rate that I'm paying. Now the reason that is so important is because that can impact what investment decisions I make such as which types of bonds I buy, It can impact retirement savings decisions, such as saving in a 401K, or trying to take advantage of other tax benefits like flexible spending accounts that I may have through my employer. So your marginal tax rate, the highest rate that you're paying on your income impacts everything from benefit selections to investment decisions. And even to try and see how valuable certain tax deductions may be to you, and everybody should review their tax return, and if you have your taxes done by an accountant, you should ask them what marginal bracket their at. Most people I ask don't know the answer to that.
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