Guide
Marginal Tax Rate vs Effective Tax Rate
Understand the difference between the rate on your next dollar and the average rate across your income.
Plain-English answer
Helpful before using the calculator
Updated 2026-07-11
What this page helps you answer
What this pay, tax or salary topic means in simple terms.
What number or setting to check next in the calculator.
Marginal tax rate
Your marginal tax rate is the rate applied to income in your highest tax bracket. It does not mean every dollar you earn is taxed at that rate.
Effective tax rate
Your effective tax rate is the total modelled tax and compulsory repayments divided by taxable income. It is usually lower than the marginal rate.
Why it matters
Pay rises, bonuses and overtime are easier to understand when you distinguish the rate on additional income from the average rate on total income.