Compare marginal tax rate and effective tax rate.

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.