Compare marginal tax rate and effective tax rate.

Banking & FinanceManagementCompanies/Organisations

The major differences between marginal tax rate and effective tax rate are as follows −

Marginal Tax Rate

  • It is additional tax paid on additional dollar is earned.

  • It’s a percentage of income paid on additional dollar earned.

  • Different tax rates are applicable.

  • Amount paid is higher (calculated amount).

  • Higher income people/companies pays more taxes.

  • Taxation goes down when income decreases.

  • Not good for business expansion and is a complicated method.

Effective Tax Rate

  • It is tax paid on taxable income.

  • Its percentage of income paid on taxes.

  • Multiple tax rates are applicable.

  • The tax amount is less (compared to marginal tax rate).

  • It has diversified impact.

  • It has minimal impact when income decreases.

  • It promotes business expansion and is easy for computation.

  • No checks are required.

raja
Published on 27-Jul-2020 11:39:39
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