← All terms
Tax

Marginal tax rate

The rate of tax you pay on your next dollar of income — not the rate you pay on all of it.

Marginal versus effective tax rate on a $150,000 incomeA $150,000 salary split into four tax bands: 0% up to $18,200, 16% to $45,000, 30% to $135,000, and 37% on the final $15,000. The effective rate across the whole income is 24.8%.A $150,000 salary, sliced by bracket0%16%30%37%$18.2k$45k$135kmarginal rate — only this sliceeffective rate: 24.8% of the whole incomeIncome tax only — the 2% Medicare levy sits on top.

Australia uses a progressive tax system, which means your income is sliced into bands and each band is taxed at its own rate. Your marginal tax rate is simply the rate that applies to the highest slice — the next dollar you earn.

This is the single most misunderstood number in Australian tax. Being 'in the 37% bracket' does not mean 37% of your income disappears. It means only the portion above $135,000 is taxed at 37%. Everything below that is still taxed at the lower rates, in order.

The rate that actually matters for your budget is your effective (or average) tax rate — total tax divided by total income. It is always lower than your marginal rate, and often dramatically so.

On a $150,000 salary in FY2025-26

Your marginal rate is 37%, but you only pay 37% on the $15,000 above $135,000. Total income tax works out to about $37,188 — an effective rate of roughly 24.8%, not 37%.

The bit people get wrong

A pay rise can never leave you worse off by 'pushing you into a higher bracket'. Only the dollars above the threshold are taxed at the higher rate, so more gross income always means more take-home pay.

Common questions

What are the tax brackets for FY2025-26?

Income up to $18,200 is tax-free. From $18,201 to $45,000 the rate is 16%, from $45,001 to $135,000 it is 30%, from $135,001 to $190,000 it is 37%, and above $190,000 it is 45%. The Medicare levy of 2% applies on top.

Is my marginal tax rate the same as my effective tax rate?

No. Your marginal rate applies only to your top slice of income, while your effective rate is your total tax divided by your total income. The effective rate is always the lower of the two.

Does the Medicare levy change my marginal rate?

In practice yes. The 2% Medicare levy sits on top of the bracket rate, so someone in the 30% bracket generally faces a combined marginal rate of 32% on their next dollar earned.

Run your own numbers

Tax calculator →Scenario planner →

Related terms

Effective tax rateThe share of your total income that actually goes to tax, once every bracket has been applied.HECS-HELP debtA government loan for university fees, repaid automatically through the tax system once your income passes a threshold.CGT discountA 50% reduction in the capital gain you declare, available to individuals who held the asset for more than 12 months.

Source: Australian Taxation Office