Your marginal rate is not your real tax rate.
Most people quote the bracket they land in and assume that's what they pay. It isn't — not even close. Enter your income and see the gap for yourself.
Enter your total yearly income before any taxes or deductions are taken out.
what you actually pay —
tax on your next dollar —
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Where every dollar goes
Three separate taxes come out of a W-2 paycheck, and they work nothing alike. Federal income tax is progressive. FICA is flat until it stops. State tax depends entirely on where you live.
How your federal tax is actually calculated
Your income fills the low brackets first. Only the money above each threshold is taxed at the higher rate — which is why landing in the 22% bracket does not mean paying 22%.
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| Bracket | Rate | Your income in this bracket | Tax owed here |
|---|---|---|---|
| Total federal income tax | — | ||
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Why your paycheck makes it look worse
Two things conspire here. First, people quote their marginal rate as if it applied to every dollar. Second, what comes out of your paycheck is only an estimate your employer makes on the IRS's behalf — and it is usually too high. The two are settled up in April.
Your all-in marginal rate — federal bracket plus FICA plus state. It's the bite on your next dollar, and it's the number that sticks in your head when you look at a raise or a bonus.
Your all-in effective rate — total tax divided by total income, once the standard deduction and every lower bracket have done their work. This is the real number.
A refund is not a bonus. It's your own money coming back.
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Why over-withholding happens
Withholding tables assume every paycheck is typical and that you take only the standard deduction. If you started mid-year, worked two jobs, got a raise, have a working spouse, or claimed nothing on your W-4, the tables will usually take too much. You can correct it — Form W-4 Step 4(b) lets you account for deductions, and Step 3 for credits. Getting it right means a bigger paycheck all year instead of a lump sum in April.
"My bonus got destroyed"
It didn't. Bonuses aren't taxed differently than your salary — they're simply withheld differently. Because the IRS treats a bonus as supplemental wages, your employer often takes more tax upfront than they would from a regular paycheck. When you file, the bonus is added to the rest of your income and taxed at your normal marginal rate, and anything over-withheld comes back as part of your refund.
Employers generally use one of two withholding methods. Neither changes what you actually owe — only what lands in your account on the day.
A flat 22% federal withholding on bonuses under $1 million, whatever your bracket.
The bonus is lumped into a regular paycheck and withheld as if that giant cheque were your normal wages — every period. This is the one that looks brutal.
At filing, the bonus is just ordinary income stacked on your salary and taxed at your marginal rate.
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The rule to remember
A bonus is ordinary income. It stacks on top of your salary and is taxed at your marginal rate — the same as every other dollar you earn. Both withholding methods are just estimates the payroll system makes on the day. Withhold too much and the difference comes back in your refund; too little and you settle up in April. The aggregate method is the usual culprit behind a bonus that looks like it lost half its value, because it briefly pretends you earn that much every pay period.
Above $1 million
Supplemental wages over $1 million in a calendar year are withheld at a mandatory flat 37% — the top federal rate — on the portion above that threshold. Your employer has no discretion there, and the percentage method is required for it.
For context: rates are near historic lows
The top statutory rate has fallen from 91% in the 1950s to 37% today. Your own all-in effective rate sits far below even that.
Top federal marginal rate, 1955–2026
Source: IRS Statistics of Income, Historical Table 23, and the Tax Foundation's historical federal income tax rates series. Top statutory rate on ordinary income; excludes surtaxes and the Net Investment Income Tax.
Your effective rate across the income spectrum
Federal + FICA + state tax as a share of gross income, calculated for your filing status and state at each income level. Assumes the standard deduction and wage income only.
What if you sheltered more?
Move the sliders. Every dollar you put into these accounts comes off your taxable income — so the money leaves your paycheck, but far less than a dollar of it actually costs you. It is the difference between saving money and spending it, and almost nobody sees it in numbers.
Drag a slider to see the effect.
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The rules behind each account
The sliders show you what these are worth. This is what you need to qualify for them. Each one is a deduction — it comes off your income before tax is calculated, so a dollar sheltered is worth your marginal rate of —.
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Credits: come straight off the tax itself
This is the distinction almost everyone gets wrong. A deduction reduces your taxable income. A credit reduces your tax bill, dollar for dollar. A credit is almost always worth more.
$2,000 deduction vs. $2,000 credit
Where charitable giving actually fits
Charitable donations are a deduction, not a credit — and an itemized one, which means they only help if all your itemized deductions together beat the standard deduction of —. For most W-2 earners they don't, so the donation costs full price. When itemizing does make sense, the deduction is worth your marginal rate: a $1,000 gift reduces your tax by about —. It's the cleanest illustration of the rule that a deduction's value scales with your bracket, while a credit's never does.