Marginal vs effective tax rate in Australia
Your marginal rate is the tax on your next dollar; your effective rate is the average on all of them. Here are both for 2026-27, and how much of a pay rise you really keep.
By Borja Pérez · Updated September 2026 · Figures are FY 2026-27
“I’m in the 30% bracket” is one of the most misunderstood sentences in Australian personal finance. It does not mean 30% of your income goes to tax. It means the next dollar you earn is taxed at 30%. The two numbers that matter, and how they differ, are your marginal rate and your effective rate.
The two rates
- Marginal rate. The tax you’d pay on one extra dollar of income. It’s the bracket rate, plus the 2% Medicare levy, plus any offset that’s phasing out. It tells you what a pay rise, overtime shift or side income is worth after tax.
- Effective rate. Your total tax (including Medicare) divided by your total income. It tells you what share of your pay goes to tax overall, and it’s always lower than your marginal rate for anyone above the tax-free threshold.
The 2026-27 resident rates are 0% up to $18,200, 15% to $45,000, 30% to $135,000, 37% to $190,000 and 45% above that. Each rate applies only to the slice of income inside that band. See tax brackets 2026-27 for the full table.
A worked example: $90,000
A resident earning $90,000 pays no tax on the first $18,200, 15% on the next $26,800 ($4,020), and 30% on the last $45,000 ($13,500). That’s $17,520 of income tax, plus $1,800 Medicare levy, for $19,320 in total. Divide by $90,000 and the effective rate is 21.5%. But the next dollar is taxed at 30% plus 2% Medicare, so the marginal rate is 32%. Same person, two very different numbers.
How much of an extra $1,000 you keep
Residents, 2026-27, no study loan and private hospital cover, so no Medicare levy surcharge. Tax includes the 2% Medicare levy and the low income tax offset.
| Income | Total tax | Effective rate | Marginal rate | Keep from next $1,000 |
|---|---|---|---|---|
| $40,000 | $3,495 | 8.7% | 22% | $780 |
| $50,000 | $6,270 | 12.5% | 33.5% | $665 |
| $60,000 | $9,620 | 16.0% | 33.5% | $665 |
| $70,000 | $12,920 | 18.5% | 32% | $680 |
| $90,000 | $19,320 | 21.5% | 32% | $680 |
| $100,000 | $22,520 | 22.5% | 32% | $680 |
| $120,000 | $28,920 | 24.1% | 32% | $680 |
| $150,000 | $39,570 | 26.4% | 39% | $610 |
| $200,000 | $59,870 | 29.9% | 47% | $530 |
Two things stand out. First, the marginal rate at $50,000 to $60,000 (33.5%) is higher than at $70,000 (32%). That’s the low income tax offset phasing out: between $45,000 and $66,667 you lose 1.5 cents of offset for every extra dollar, on top of the 30% rate and the Medicare levy. Second, at $200,000 you still keep 53 cents of each extra dollar.
The myth: a pay rise can push you into a worse position
Because only the income inside a bracket is taxed at that bracket’s rate, crossing a threshold never reduces your take-home pay. Someone moving from $134,000 to $136,000 pays 37% only on the $1,000 above $135,000; the rest of the raise is still taxed at 30%. The idea that a raise can leave you with less usually comes from a different place: losing a means-tested benefit or hitting a threshold like the Medicare levy surcharge, which is a separate cliff and not a bracket change.
Rule of thumb: for most Australian residents earning $70,000 to $135,000, about 68 cents of each extra dollar arrives in your pocket. Deductions are worth the same rate in reverse: a $1,000 deduction saves roughly $320.
Frequently asked questions
Can a pay rise leave me with less take-home pay?
No. Marginal brackets tax only the dollars above each threshold, so more income always means more take-home pay. Even in the top bracket you keep 53 cents of each extra dollar once the Medicare levy is counted.
Which rate should I use to compare job offers?
Compare the effective rate or, better, the take-home pay for each salary using the calculator. Use the marginal rate when deciding whether extra hours, a side income or a deduction is worth it.
Does salary sacrifice use my marginal rate?
Yes, in effect: money you sacrifice into super is taxed at 15% inside the fund rather than at your marginal rate, so the benefit grows with your bracket. See salary sacrifice explained.
This guide is general information about the 2026-27 year for Australian residents, not personal tax or financial advice. Figures exclude study loan repayments and the Medicare levy surcharge and are rounded. Full workings are on our methodology page.