Marginal Tax Rates

What is it?

Income is not taxed at a flat rate in Australia.
Marginal tax rates means your income is separated into different brackets – with each bracket taxed different the higher the bracket you are in.
This is known as a progressive tax system – you pay progressively higher rates on each portion of your income as it moves into a higher bracket. Your marginal tax rate is the highest rate of tax you pay, applied only to the income that falls within the highest tax bracket, not your entire income

What are the current tax brackets and marginal tax rates?

For an Australian Tax Resident in the 2025-2026 financial year, the tax brackets and rates are as follows

                                                           Note: this does not include the medicare levy of 2%

Case Example 1:

Micheal earns $100,000 in the 2025-2026 financial year.
His marginal tax rate is 30%.
$0 – $18,200:               In this tax bracket – he has earnt $18,200 at 0% tax       = $0
$18,201 – $45,000:      In this tax bracket – he has earnt $26,800 at 16% tax    = $4,288
$45,001 – $135,000:   In this tax bracket – he has earnt $55,000 at 30% tax   = $16,500
Adding up the total tax he has paid over the 3 tax brackets = $20,788

Case Example 2

Kristine earns $75,000 in 2025-2026 financial year.
Her marginal tax rate is 30%.
$0 – $18,200:              In this tax bracket – she has earnt $18,200 at 0% tax     = $0
$18,201 – $45,000:     In this tax bracket – she has earnt $26,800 at 16% tax   = $4,288
$45,001 – $135,000:  In this tax bracket – she has earnt $30000 at 30% tax  = $9,000
Adding up the total tax she has paid over the 3 tax brackets = $13,288

Case Example 3

Steven earns $15,000 in the 2025-2026 financial year
His marginal tax rate is 0%.
$0 – $18,200:              In this tax bracket – he has earnt $15,000 at 0% tax      = $0

Steven pays $0 in income tax.

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