What is the difference between marginal and effective tax rate?

Your marginal tax rate is the rate at which you will pay tax on the last dollar you earn. It is often as high as 30-50% for a physician. Your effective tax rate is the total you pay in taxes divided by your total income. A typical physician may have an effective rate as low as 15% but rarely has a rate higher than 40%. The difference between these two tax rates illustrates an important concept in the tax code. Although the code is progressive (meaning the more you make the higher your tax rate), even high earners only have low tax rates applied to the first few dollars they make. When you get “bumped into the next bracket” you only pay at the higher rate on the money you made above that bracket's lower threshold.