Different portions of your income are taxed at different rates, on a graduated scale. The current income tax rates are 10%, 25%, 25%, 28%, 33%, and 35%. The income subject to each of these rates depends on your tax filing status, with those amounts adjusted annually for inflation. You can calculate your effective tax rate by dividing total income taxes paid by your taxable income.
When making tax decisions, however, most people are more concerned with their marginal tax rate, which is the highest rate you pay on the last dollar of income you earn. That is the rate that any additional income would be taxed at or any deductions would offset income at. For instance, your marginal tax rate would be a factor in deciding when to sell an investment, considering an investment in municipal bonds, making individual retirement account (IRA) decisions, and determining whether to defer or take income and deductions in the current year.