#59: The Finance Flash Go Podcast | Important Topics About Money | Tax Rates

Today on the Finance Flash Go! podcast, we’re going to talk about tax rates. It’s very important to understand the difference between your marginal and your effective tax rate. When people talk about their “tax bracket,” they are really talking about their marginal tax rate. This is the rate that the next $1 that they earn is taxed at. But, we have a progressive tax system in the US. This means that every dollar that you make is not taxed the same way. The first $1000, let’s say, is taxed at a much lower rate than is the rest of your income. As you make more taxable income, you progress up through the tax brackets. These change all the time with different political administrations, however, the highest tax bracket is usually around 33%, give or take. So, if you make a certain amount of income, usually above $400,000, every dollar above that income amount will be taxed at the highest rate. That is your marginal tax rate. Your effective tax rate is equal to the amount of taxes you pay divided by your taxable income. This is basically the averaged out tax rate that you pay for all of your taxable income. It is by definition less than your marginal tax rate. Please enjoy the Finance Flash Go podcast! We plan to release a new episode every weekday answering important finance questions. If you ever want to submit a question to our podcast, send an e-mail to [email protected], and please be sure to check out Jordan Frey’s blog prudentplasticsurgeon.com where he gives great financial advice. A brief disclaimer While we are providing knowledge and awareness around financial topics in this show, we are not held responsible for any financial decisions you choose to make in response to the podcast. We hope to provide accurate information in regards to money and different methods of wealth creation, but it is always the learner’s responsibility to due their due diligence before making important financial decisions. We hope you enjoy the show and thanks for tuning in, and if you like the podcast please subscribe, share, and leave us a review on the podcasting platform of your choice!