What is average and marginal tax rate?

In canada does everyone pay average tax rate and marginal tax rate?

• Does everybody have to pay both tax rates or only one of them? So basically if you make $50,000 a year in Ontario how much money would you lose to these taxes?

• Answer:

  You need to understand the difference between the two terms. Average tax rate is just that -- the rate of tax you pay on your total income. Marginal tax rate is the rate you pay on your last dollar of income. If your income is $50,000 and your income tax bill is $10,000, your average tax rate is 20%. But what happens if you work $100 worth of overtime? How much tax will you pay on that extra $100. That's your marginal tax rate. In your example, the tax hit might be $35, making your marginal tax rate 35%. Marginal tax rate is an important concept because if affects every taxpayer's decision as to whether to work or invest more. If you're going to lose 80% to taxes (a not uncommon example in many places), people won't bother -- it's not worth it to them. So the economy loses out on the people who create the jobs -- the risk takers. Marginal tax rates explain why "tax the rich" campaigns hurt the people they're designed to help. Sure the rich can afford it, but the economic fallout (in terms of jobs lost) is devastating.