Employer’s Combined Marginal Tax Rate -What does this mean

[Alex Daisy]

I just started working with a new proposal system and one of the fields to enter in is "Employer's Combined Marginal Tax Rate".

Could someone help me figure out what this means?

Could it be the average of the owners individual tax bracket and the companies tax bracket?

Any help is greatly appreciated.

ALEX

[ESOP Guy]

Wouldn't combined be the Federal plus state marginal rate for the employer?

Just taking an educated guess but that is my first reaction when I read those words.

[david rigby]

... and "marginal" means the rate at which the last dollar is taxed. In a progressive tax system, this is the highest rate at which any portion of the person's income is subject to taxation.

[Peter Gulia]

For a typical partnership (including a limited-liability company) or S corporation, pass-through tax treatment might mean that the employer's marginal tax rate is (or approaches) zero.

For a C corporation, a marginal tax rate can be substantial, especially for the portion of the business that is done in Boston, New York, Philadelphia, or San Francisco.

Does the proposal software also have an aspect for a pass-through business owner's marginal tax rate (which might vary following residences and business locations)?

[GBurns]

But, the question was about "Employer's Combined Marginal Tax Rate".

As far as I know there is no such thing and rather than go into pointless speculation, I suggest that you ask the support people of the proposal system exactly what they mean.

[ESOP Guy]

Once again I think the simplest read is this:

If the corporation's marginal rate is 25% at the federal level and 3% is the marginal rate at the state level it wants 28%.

Asking the software provider is a good idea. However, most projections try to estimate the tax saving of the deductions which would happen at the marginal rate.

[Alex Daisy]

I asked the software provider for further clarification regarding the Combined Marginal Tax Rate and what is being combined.

Their response was:

The tax rate for the various individuals impacted, e.g. partners and owners. It's not going to be exact, just an estimate for illustrative purposes.

[My 2 cents]

Just asking, but would the answer depend on whether some of the contributions/benefits will be for the benefit of the partners or owners? Or is the question just intended to deal with the impact on this year's taxable income?

[Bird]

They mean combined federal plus state plus local if any, for the important employees. At the bottom of the illustration it will probably say in big letters "TAX SAVINGS $XXXXXX."