Marginal vs effective tax rate

“If I get a raise I’ll move into a higher tax bracket and take home less.” This is one of the most common money myths, and it’s wrong. Here’s why.

How tax brackets really work

Both the US and the UK use progressive income tax. Your income is split into slices, and each slice is taxed at its own rate. Moving into a higher bracket only affects the money inside that bracket. The rest of your income is taxed exactly as before.

• Your marginal rate is the rate on your next dollar or pound of income.
• Your effective rate is your total tax divided by your total income. It’s always lower than your marginal rate.

US example (2026, single filer)

Take a $75,000 salary. After the $16,100 standard deduction, taxable income is $58,900:

• First $12,400 at 10% = $1,240
• Next $38,000 (to $50,400) at 12% = $4,560
• Last $8,500 at 22% = $1,870

Total federal income tax: $7,670. The marginal rate is 22%, but the effective rate on the $75,000 salary is only about 10.2%.

UK example (2026/27, England)

Take a £60,000 salary:

• First £12,570: Personal Allowance, 0%
• £12,571 to £50,270 (£37,700) at 20% = £7,540
• £50,271 to £60,000 (£9,730) at 40% = £3,892

Income Tax: £11,432, an effective rate of about 19%, even though the marginal rate is 40%. (National Insurance comes on top. See the UK take-home pay calculator.)

The exceptions worth knowing

A raise can still bring a higher-than-expected marginal rate where allowances or benefits are withdrawn as income rises:

• UK £100,000 trap: the Personal Allowance is withdrawn between £100,000 and £125,140, giving an effective marginal rate of 60%. Pension contributions are a popular way to reduce it.
• UK High Income Child Benefit Charge: Child Benefit is clawed back gradually as income rises above £60,000.
• US credits and subsidies: some credits (such as the Earned Income Tax Credit) and health insurance subsidies shrink as income rises.

Even then, a pay rise almost never leaves you worse off overall. You just keep a smaller share of the extra.

Try it yourself

Put your own salary into our US paycheck calculator or UK take-home pay calculator. Then add $5,000 or £5,000 and watch how your take-home pay changes.

General information only, based on 2026 (US) and 2026/27 (UK) rates. Not tax advice.