Likewise, understanding which bracket you're in helps you understand how changes in your earnings will affect your overall tax burden, says Sri Reddy, senior vice president of retirement and income solutions at Principal Financial Group. If your marginal tax rate doesn't tell you how much tax you'll actually pay, why do you even need to know what it is? For one thing, it's because you can only determine your effective tax rate by calculating total tax liability. Why is it important to know your tax bracket? Your marginal tax rate is the highest tax rate your taxable income falls into. Note: Your effective tax rate is the actual percentage of taxes you pay overall. You calculate your effective tax rate by dividing your total tax liability, $6,538, by your annual taxable income, $51,150. The actual percentage you pay on the entirety of your taxable income is called the effective tax rate. So putting it all together, your total federal income tax for the year would be $6,538.
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