Marginal Tax Rate Australia 2025: What It Means For Your Income

Every Australian worker hears about tax rates — but the concept of the marginal tax rate is often misunderstood. With the 2025 tax year bringing in new changes, now’s the perfect time to get clear on how marginal tax rates work, how they affect your take-home pay, and what you can do to keep more of your hard-earned income.

What Is a Marginal Tax Rate (And Why Should You Care)?

Your marginal tax rate is the rate of tax you pay on each additional dollar you earn. It’s not a flat percentage on your total income — instead, Australia’s progressive tax system means different slices of your income are taxed at different rates. That’s why getting a bonus or a pay rise doesn’t mean you’ll lose most of it to the taxman, despite common misconceptions.

• Marginal means ‘the next dollar’. Only the portion of your income above a certain threshold is taxed at the higher rate.

• Most Australians’ total tax paid is less than their marginal tax rate.

For example, if you earn $90,000 in 2025, only the part of your income above the relevant threshold is taxed at the highest applicable rate — not the whole $90,000.

2025: What Are Australia’s Latest Marginal Tax Rates?

This year, the Stage 3 tax cuts have come into effect, reshaping the brackets for millions of Australians. Here’s a quick look at the individual tax rates (excluding Medicare levy):

• Up to $18,200: Nil

• $18,201 – $45,000: 16%

• $45,001 – $135,000: 30%

• $135,001 – $190,000: 37%

• Above $190,000: 45%

Let’s say you earn $140,000 in 2025:

• The first $18,200 is tax-free.

• The next $26,800 ($18,201 – $45,000) is taxed at 16%.

• The following $90,000 ($45,001 – $135,000) is taxed at 30%.

• The remaining $5,000 ($135,001 – $140,000) is taxed at 37%.

This progressive approach means your overall tax rate (the percentage of tax you pay on your total income) is lower than your highest marginal rate. The new 2025 rates are designed to deliver bigger savings for middle-income earners, so checking your payslip could bring a welcome surprise.

How Marginal Tax Rates Impact Real-World Decisions

Understanding your marginal tax rate isn’t just a trivia point — it shapes real financial choices:

• Salary negotiations: When weighing up a pay rise, remember that only the part above your current bracket is taxed at the new higher rate.

• Side hustles and overtime: Additional income is taxed at your marginal rate, so calculate how much you’ll actually keep before committing extra hours.

• Superannuation contributions: Pre-tax (salary sacrifice) contributions can lower your taxable income, pushing some of your earnings into a lower marginal tax bracket and reducing the tax you pay overall.

• Investment income: Dividends, rental income, and capital gains are all added to your assessable income, so knowing your marginal rate helps you forecast your after-tax returns.

For instance, imagine you’re offered $10,000 in extra contract work. If your main job already puts you in the 30% marginal bracket, that extra $10,000 will be taxed at 30% (plus Medicare levy), not at a lower average rate.

2025 Tax Planning Tips: Make Your Marginal Rate Work For You

The 2025 tax cuts have reshaped the playing field. Here’s how to make the most of your marginal tax rate this year:

• Review your salary packaging: With new brackets, salary sacrifice strategies may offer more savings — especially for those now in the 30% band.

• Claim every deduction you’re entitled to: Each dollar you claim as a deduction reduces the income taxed at your highest marginal rate, making deductions more valuable.

• Consider timing your income: If you have control over when you receive bonuses or invoices, timing them across financial years could mean paying less tax.

• Stay up to date: Tax laws shift regularly. The Stage 3 cuts are in place now, but always check the latest ATO updates when planning big decisions.

Conclusion: Know Your Marginal Rate, Keep More Of What You Earn

Understanding Australia’s marginal tax rates puts you in control of your finances, whether you’re negotiating a pay bump, planning investments, or maximising your deductions. With the 2025 tax brackets delivering savings to millions, now is the time to fine-tune your tax strategy and make sure more of your income ends up in your pocket — not the ATO’s.