Marginal Tax Impact Tool

When you receive a bonus, a raise, or income from a side gig, one of the first questions that comes to mind is: “How much of this will I actually keep after taxes?” The answer depends on your marginal tax rate—the rate applied to your next dollar of income. The Marginal Tax Impact Tool is designed to help you estimate how much of your extra income goes to federal, state, and payroll taxes, and how much remains in your pocket.

Marginal tax rate is different from effective tax rate. Your effective rate averages all of your income and taxes together, while your marginal rate focuses on the tax applied to additional income. For example, if you are in the 22% federal bracket, your next dollar of taxable income is generally taxed at 22% federally, even though your overall effective rate might be lower. When you add state income tax and payroll taxes such as Social Security and Medicare, the combined marginal rate on extra wages can be significantly higher than the federal rate alone.

The tool starts with your current annual gross income. This gives context for your situation but does not drive the core calculation. The key inputs are your marginal federal, state, and payroll tax rates, plus the amount of extra income you want to analyze. You can also specify a pre-tax contribution rate on that extra income—for example, if you plan to contribute 5% of a bonus to your 401(k) or other pre-tax account.

The core formula for combined marginal rate is straightforward: combinedMarginalRate = federalMarginal + stateMarginal + payrollMarginal. If your federal marginal rate is 22%, your state marginal rate is 5%, and your payroll marginal rate is 7.65%, your combined marginal rate is 34.65%. This means that, ignoring credits and other nuances, roughly 34.65% of your extra wages could go to taxes. The tool uses this combined rate to estimate tax on the extra income: taxOnExtra = extraIncome × combinedMarginalRate / 100.

Pre-tax contributions can change the picture. If you plan to contribute a portion of your extra income to a retirement plan or HSA, that portion may avoid current income tax, though payroll taxes may still apply in some cases. The tool approximates pre-tax contributions using preTaxContrib = extraIncome × preTaxRate / 100. It then estimates net extra income after tax and pre-tax contributions: netExtra = extraIncome − taxOnExtra − preTaxContrib. This gives you a sense of how much of the extra income is available for spending or saving in after-tax accounts.

The breakdown table shows two scenarios: your primary marginal rate inputs and an alternative set of marginal rates. The alternative scenario can represent a different state, a different bracket, or a different withholding approach used by your employer for bonuses. For each scenario, the tool calculates combined marginal rate, tax on extra income, and net extra income. This makes it easy to compare how moving to a higher bracket or a higher-tax state might affect the take-home value of additional earnings.

Consider a practical example. Suppose your current income is \$85,000. You expect a \$5,000 bonus, and your marginal rates are 22% federal, 5% state, and 7.65% payroll. Your combined marginal rate is 34.65%. The estimated tax on the bonus is \$5,000 × 34.65% = \$1,732.50. If you contribute 5% of the bonus (\$250) to your 401(k), your net extra income after tax and pre-tax contributions is approximately \$5,000 − \$1,732.50 − \$250 = \$3,017.50. The tool will display these numbers and show that you keep about 60.35% of the bonus in after-tax cash, while 5% goes to pre-tax savings and 34.65% goes to taxes.

You can also set a target keep percentage. For example, you might want to keep at least 70% of any bonus after tax and pre-tax contributions. The tool calculates your actual keep percentage using keepRate = (netExtra / extraIncome) × 100 and compares it to your target. If your keep rate is below the target, you may decide to adjust your pre-tax contribution rate or revisit your expectations about how much of the bonus will be available for spending.

It is important to remember that real-world tax calculations can be more complex than the simple marginal model used here. Bonuses may be subject to supplemental withholding rates, credits may reduce your overall tax, and certain types of income may be taxed differently. The Marginal Tax Impact Tool does not attempt to model every nuance of tax law. Instead, it provides a clear, intuitive estimate based on the marginal rates you enter, so you can quickly understand the approximate impact of extra income.

To get the most value from the tool, consider running multiple scenarios. You might compare your current state to another state, or test how a higher federal bracket would affect your bonus if your income increases. You can also explore how changing your pre-tax contribution rate affects your net extra income and keep percentage. The CSV export feature lets you save these scenarios and track them over time, building a personal record of how your marginal tax situation evolves.

Pair this tool with other MyGenFinance calculators—such as the Effective Tax Rate Calculator, After-Tax Income Calculator, and Tax Withholding Optimizer—to build a more complete view of how taxes interact with your income and financial decisions. While no single tool can capture every detail, understanding marginal impact is a powerful step toward making informed choices about bonuses, raises, and side income.

Ultimately, the goal of the Marginal Tax Impact Tool is clarity. By breaking down the tax impact of extra income into simple, understandable components, it helps you see how much you truly gain from additional earnings and how different strategies—such as pre-tax contributions—can shape that outcome. Use it as a guide, and always pair it with official tax resources and professional advice when making decisions that affect your filings.