How Income Tax Brackets Really Work

Marginal vs effective tax rate explained with a worked example, and why a raise never leaves you with less take-home pay.

Most people fear that a raise could push them into a higher bracket and shrink their pay. That never happens. Brackets are slices, and each rate applies only to the income inside its own slice.

Marginal vs effective rate

Your marginal rate is the rate on your next dollar. Your effective rate is total tax divided by total income, and it is always lower. In the US for 2025, a single filer pays 10% on the lowest slice of taxable income, 12% on the next, and so on up to 37%. Someone in the 22% bracket pays 22% only on the part of income that falls in that slice.

Taxable income is not your salary

Tax is worked out after deductions. A single US filer subtracts the standard deduction of $15,750 first, so the first $15,750 of wages is taxed at nothing.

Income tax is not the whole bill

Payroll taxes (Social Security and Medicare in the US, National Insurance in the UK, CPP and EI in Canada, the Medicare levy in Australia) come out as well. That is why take-home pay is lower than a simple bracket calculation suggests.

Try it with your own pay

Use the income tax calculator for tax alone, or a take-home tool for your country: US, UK, Canada or Australia. Rates change each year, and these tools use the 2025 US, 2025/26 UK, 2025 Canada and 2025-26 Australia figures.

This article is general education, not financial advice.