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Tax basics · explained simply

Marginal vs effective tax rate

The one thing almost everyone gets wrong about tax brackets — and why a pay rise never leaves you worse off.

✅ The myth: "If my raise pushes me into a higher tax bracket, I'll take home less." This is false. Only the part of your income inside a higher band is taxed at the higher rate — never your whole income. Earning more always means keeping more.

See it for yourself

$
—Marginal rate
(on your next dollar)
—Effective rate
(your real average)
—Income tax

Headline income tax only (single filer), to illustrate the concept. For your full figure use your country's calculator.

So what's the difference?

Marginal rate is the rate on your next dollar earned — the top band your income reaches. It's what matters for "should I take the extra shift / raise / freelance gig?" (Answer: you always keep most of it.)

Effective rate is your real average — total tax divided by total income. It's always lower than your marginal rate, because your first chunks of income are taxed at the lower bands (often 0%). This is the number that actually describes your tax burden.

Example: in a system with 0% up to 12,570 then 20%, someone earning 20,000 pays 20% only on 7,430 — an effective rate of about 7.4%, not 20%.