Marginal vs Average Tax Rate
Australia taxes income in slices. The first $18,200 is tax-free, the next slice up to $45,000 is taxed at 15%, and so on up to 45% above $190,000. Your marginal tax rate is the rate on the slice your next dollar lands in. Your average tax rate is your total tax divided by your total income. Because most of your income sits in the lower slices, the average is always below the marginal rate.
The distinction matters whenever your income changes at the edge: a pay rise, a bonus, overtime, a second job, a salary sacrifice, or a deduction. The edge dollar is taxed at the marginal rate, so that is the rate to use. If you want the scale itself, with the tax payable at every threshold and how 2026-27 compares with 2025-26, see the tax brackets page. This page starts where that one stops: what the scale means for the money you are about to earn.
The All-In Marginal Rate at Every Income
The scale rate is not always what the next dollar costs. The Medicare levy and the low income tax offset (LITO) change the real rate in the lower bands. Here is the all-in marginal rate for a resident single taxpayer with no HELP debt, in ten bands:
| Taxable income | Scale rate | All-in marginal rate | Why |
|---|---|---|---|
| $0 to $18,200 | 0% | 0% | Tax-free threshold: nothing is payable on the first $18,200 |
| $18,201 to $22,867 | 15% | 0% | The 15c scale rate is cancelled by the $700 low income tax offset, so the tax stays at nil |
| $22,868 to $28,011 | 15% | 15% | Scale rate only: the Medicare levy does not start until $28,011 |
| $28,012 to $35,013 | 15% | 25% | Medicare levy phases in at 10c per $1 instead of 2c, on top of the scale rate |
| $35,014 to $37,500 | 15% | 17% | Scale rate + 2c Medicare levy |
| $37,501 to $45,000 | 15% | 22% | Scale rate + 2c Medicare + 5c as the low income tax offset is withdrawn |
| $45,001 to $66,667 | 30% | 33.5% | Scale rate + 2c Medicare + 1.5c as the low income tax offset is withdrawn |
| $66,668 to $135,000 | 30% | 32% | Scale rate + 2c Medicare levy |
| $135,001 to $190,000 | 37% | 39% | Scale rate + 2c Medicare levy |
| Over $190,000 | 45% | 47% | Scale rate + 2c Medicare levy |
ATO resident rates for 2026-27 (last updated 13 August 2026), LITO (ATO QC105020) and the Medicare levy. Medicare levy low-income thresholds are the 2025-26 figures, the latest the ATO has published. Read 23 September 2026.
Two bands catch people out. Between $28,011 and $35,013, the Medicare levy phases in at 10c per dollar, so the all-in rate is 25%, not 15%. And from $37,500 to $66,667 the LITO is withdrawn, which adds 5c per dollar to $45,000 and 1.5c per dollar after it. That is why a raise at $50,000 can cost more than a raise at $90,000, as the table below shows. For the offset itself, see the low income tax offset page.
What a $5,000 Raise Actually Nets
The same $5,000 raise is worth different amounts depending on where your salary sits. Each row below is a full run of the 2026-27 tax engine, with and without the raise.
| Current salary | Extra tax and Medicare | You keep | Marginal rate on the raise |
|---|---|---|---|
| $30,000 | $1,250 | $3,750 | 25% |
| $50,000 | $1,675 | $3,325 | 33.5% |
| $70,000 | $1,600 | $3,400 | 32% |
| $90,000 | $1,600 | $3,400 | 32% |
| $140,000 | $1,950 | $3,050 | 39% |
| $200,000 | $2,350 | $2,650 | 47% |
Resident, single, no HELP debt, private hospital cover held. Not a statement of what your employer will withhold.
Worked Example: A $10,000 Raise on $85,000
Sam earns $85,000 and is offered a $10,000 raise to $95,000. Both incomes sit inside the 30% bracket ($45,001 to $135,000), so the extra $10,000 is taxed at 30% plus the 2% Medicare levy: $3,200 of extra tax, leaving Sam with $6,800 a year, or $261.54 extra each fortnight. Sam’s average rate moves from 20.8% to 22.0%; the raise costs 32%, the average only edges up.
If Sam had $130,000 instead, the same $10,000 would cross the $135,000 line. Only the part above it is taxed at 37%: five thousand at 32% and five thousand at 39% all-in gives $3,550 of extra tax. Crossing a bracket never taxes the income below it at the higher rate. To see the full picture of a salary change with take-home pay per pay period, use the pay rise calculator.
What Can Make a Raise Cost More
- A HELP debt. From $69,528 a repayment applies, built from 15c per dollar up to $129,717, then 17c to $186,050. On Sam’s example, a HELP debt takes the net gain from $6,800 to $5,300. Use the HECS-HELP calculator for the exact repayment.
- The Medicare levy surcharge. Without private hospital cover, the surcharge applies to singles above $105,000 and is charged on your whole income, not just the part above it. A $10,000 raise on $100,000 keeps $6,800 with cover, but $5,700 without it. See the Medicare levy surcharge calculator.
- Losing a benefit. Family Tax Benefit, Centrelink payments and child care subsidy all reduce as income rises, which is a cost on top of tax. Those are separate income tests, not part of the tax scale.
Bonuses, Overtime and Extra Shifts
A bonus or overtime is not taxed at a special rate. It is added to your taxable income for the year, so it is taxed at your marginal rate exactly like a raise. What differs is the withholding. Your employer withholds tax on a bonus using the ATO’s method for bonuses and back payments, which spreads the payment across the year’s pay periods to estimate the tax. That can withhold more or less than the final tax, and the difference is settled when you lodge your return. The bonus tax calculator shows the true annual tax on a bonus and the likely withholding; the overtime calculator does the same for extra hours.
Using Your Marginal Rate to Decide
Because the marginal rate is the rate on the next dollar, it is also the rate that a deduction or pre-tax contribution saves. A $1,000 work-related deduction saves 32c in the dollar at $90,000 but 39c at $150,000. Salary sacrificing into super works the same way: the money skips your marginal rate and pays 15% contributions tax in the fund instead, so the saving grows with your marginal rate. The salary sacrifice calculator shows the result against the concessional contributions cap, and the take-home pay calculator shows the full pay after tax.
Related Calculators and Guides
- Tax Brackets 2026-27: the scale and the tax at each threshold
- Pay Rise Calculator: what a permanent raise adds to each pay
- Bonus Tax Calculator: tax on a bonus, and what is withheld
- Income Tax Calculator: your total tax for the year
- Tax on Every Salary: income tax and marginal rate at each salary
Frequently Asked Questions
Marginal tax rate questions and answers
What is a marginal tax rate?
Your marginal tax rate is the tax rate on your next dollar of taxable income: the rate of the bracket your income finishes in. In 2026-27 the resident scale is 0% to $18,200, 15% to $45,000, 30% to $135,000, 37% to $190,000 and 45% above that, before the 2% Medicare levy. Only the dollars inside each bracket are taxed at that bracket's rate.
What is the difference between marginal and average tax rate?
The marginal rate is what you pay on the next dollar. The average (effective) rate is your total tax divided by your total income. Because the lower bands are taxed at lower rates, your average rate is always below your marginal rate. On $90,000 the marginal rate is 30% plus 2% Medicare, but the average rate including Medicare is only about 21%.
Can a pay rise push me into a higher bracket and reduce my take-home pay?
No. Moving into a higher bracket only taxes the part of your income above the threshold at the higher rate. Your existing income is taxed exactly as before, so a raise always increases take-home pay. The one thing that can make a raise feel small is the combined cost of tax, Medicare levy, HELP repayments and, without private hospital cover, the Medicare levy surcharge.
How much of a $10,000 raise do I keep?
It depends on where the raise falls. On $85,000 a $10,000 raise sits entirely inside the 30% bracket, so tax and Medicare take 32% and you keep $6,800. If a HELP debt applies, the repayment adds 15c per $1 above the threshold, so you keep less. Use the calculator above for your own figures.
Is a bonus taxed at a higher rate than my normal pay?
No. A bonus is added to your income for the year and taxed at your marginal rate, the same as a raise. It can look higher because your employer withholds tax on the bonus using the ATO's method for bonuses and back payments, which estimates the tax by spreading the payment across the year's pay periods. The withholding is only an estimate; any over-withholding comes back when you lodge your tax return.
Why does the next dollar cost more than the bracket rate at lower incomes?
Two things stack on top of the scale rate between about $28,000 and $67,000: the Medicare levy phases in at 10c per $1 above $28,011 until it reaches the full 2%, and the low income tax offset is withdrawn at 5c per $1 from $37,500 to $45,000 and 1.5c per $1 from $45,000 to $66,667. The all-in marginal rate in those ranges is 25%, 22% and 33.5%.
What is my marginal tax rate at $100,000?
At $100,000 taxable income your scale rate is 30%, and with the 2% Medicare levy the all-in marginal rate is 32%. Your average rate is lower, around 22% including Medicare. Without private hospital cover, crossing $105,000 adds the Medicare levy surcharge on your whole income.
Does salary sacrifice save tax at my marginal rate?
Yes. Salary sacrificed into super is taken from your pre-tax pay, so you avoid your marginal rate on it and pay 15% contributions tax in the fund instead. The higher your marginal rate, the bigger the saving. Employer concessional contributions are subject to the annual cap, so check it before sacrificing a large amount.
Where can I see the full tax brackets?
The full 2026-27 scale, with the tax payable at each threshold and the change from 2025-26, is on the tax brackets page. This page is about the other question: what the tax system takes from a raise, bonus or extra shifts.
How we worked this out▼
Every figure is a difference between two full runs of the site’s 2026-27 resident tax engine: tax on the new income less tax on the old income, with the low income tax offset applied, the Medicare levy (including the low-income shade-in), the HELP repayment if selected and the Medicare levy surcharge if no private cover is selected. The marginal rate on a raise is the extra tax divided by the raise; the average rate is total tax divided by total income. The all-in bands are the slope of tax plus levy across the breakpoints in the ATO scale, the LITO and the levy thresholds.
Assumes a resident for the full year, single, with no other offsets, deductions or income. It shows the annual tax outcome, not your employer’s withholding, and is general information, not tax advice.
Sources & References
- 1Tax rates – Australian resident— Australian Taxation Office
- 2Low income tax offset— Australian Taxation Office
- 3Medicare levy reduction for low-income earners— Australian Taxation Office
- 4PAYG withholding: Schedule 1 formulas— Australian Taxation Office
Last verified: 23 September 2026. Our content is based on the latest information from official Australian government sources.
Anita Bell
AuthorFounder & Senior Bookkeeper
Accountancy degree (2015); certified in Xero, QuickBooks Online, MYOB, Saasu, Zoho and Reckon One
Anita Bell earned her accountancy degree in 2015 and has worked as a senior bookkeeper with Prime Bookkeeping for over 5 years. This built her skills in Australian and New Zealand tax legislation and industry regulations. She is certified in Xero, QuickBooks Online, MYOB, Saasu, Zoho and Reckon One, and works with payroll and rostering software including Gusto, Deputy, Tsheets and KeyPay. She has strong experience in hospitality, building and construction, financial services, real estate, ecommerce, and medical and health services.
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