Effective Tax Rate
Your total tax as a percentage of your total income — the actual overall rate you pay after all brackets, offsets, and levies.
Your effective tax rate (also called the average tax rate) is the total amount of tax you pay divided by your total taxable income, expressed as a percentage. Unlike the marginal rate, which only applies to your highest dollar of income, the effective rate reflects the blended impact of all tax brackets, offsets, and the Medicare levy across your entire income.
For example, on a taxable income of $100,000 in 2026-27, your income tax is approximately $20,520, plus Medicare levy of $2,000, totalling about $22,520. Your effective tax rate is roughly 22.5% — significantly lower than your marginal rate of 30%. At $200,000, the effective rate climbs to about 29.9%, still below the 45% marginal rate.
The effective rate is a more useful measure of your actual tax burden when comparing tax systems across countries, planning your budget, or evaluating the real impact of a pay rise. Many people overestimate their tax because they confuse marginal and effective rates — believing that moving into the 37% bracket means all their income is taxed at 37%.
How it works
Your effective tax rate is your total tax paid divided by your total taxable income, expressed as a percentage — it blends together every bracket your income passed through, plus any offsets and the Medicare levy, into a single overall figure. Unlike the marginal rate, which only describes the tax on your last dollar, the effective rate describes what you actually paid across your whole income for the year.
You'll typically see your effective rate implicitly on your Notice of Assessment, where total tax and total income are both shown even if the percentage itself isn't spelled out — dividing one by the other gives you the figure. It's the more useful number for comparing your actual tax burden year to year, or for understanding what a pay rise really nets you after tax, since it captures the averaging effect of the lower brackets you pass through before reaching your marginal rate.
The rate climbs as income rises but always stays below the marginal rate, because the tax-free threshold and lower brackets pull the average down. People sometimes overstate their own tax burden by quoting their marginal rate as if it applied to everything they earn — the effective rate is almost always meaningfully lower, and the gap between the two widens the higher someone's income climbs into the top brackets.
Example: effective vs marginal rate on $120,000
On a taxable income of $120,000 in 2026-27, income tax works out to $0 on the first $18,200, 15% on the next $26,800 ($4,020), and 30% on the remaining $75,000 up to $120,000 ($22,500) — a total of $26,520. Adding the Medicare levy of 2% on the full $120,000 ($2,400) brings total tax to $28,920.
Dividing that $28,920 by the $120,000 income gives an effective tax rate of 24.1%. That's noticeably below the 30% marginal rate that applied to the last dollar earned — the gap exists because a large chunk of the income was taxed at 0% and 15% before the 30% bracket was even reached.
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Marginal Tax Rate
The rate of tax applied to each additional dollar of income — determined by the tax bracket your top dollar falls into.
Tax Brackets
The income ranges that determine the rate of tax applied to each portion of your taxable income.
Income Tax
Tax levied by the federal government on your taxable income, calculated using progressive tax brackets.
Taxable Income
Your assessable income minus allowable deductions — the figure used to calculate your income tax.