Understanding how much tax you actually pay is more complicated than it seems. The key? Australia’s marginal tax rate system. As we head into 2025, recent changes to income tax brackets and rates are reshaping what you’ll take home—and what you’ll hand over to the ATO. Whether you’re an employee, contractor, or business owner, knowing your marginal tax rate can help you make smarter financial decisions.
The marginal tax rate is the percentage of tax you pay on each additional dollar of income. Unlike a flat tax, Australia uses a tiered system: different portions of your income are taxed at different rates. That means earning more doesn’t push your entire salary into a higher tax bracket—only the part that exceeds the bracket threshold is taxed at the higher rate.
Major tax reforms have arrived in 2025, following the government’s staged rollout of the “Stage 3 tax cuts.” Here’s how the rates and brackets look for Australian residents in the 2024-25 financial year:
These updated brackets mean millions of Australians will see more money in their pay packets. For instance, someone earning $80,000 saves around $1,700 annually compared to previous years. However, the new brackets also flatten the system in the middle, with the old 32.5% and 37% brackets largely merged into a single 30% rate.
Marginal tax rates don’t just affect your payslip—they influence everything from salary negotiations to investment choices and superannuation strategies. Here’s how:
Employers and employees alike should check new payroll withholding tables to ensure correct tax is deducted. Contractors and sole traders need to adjust their quarterly PAYG instalments to reflect the new thresholds.
Many Australians believe that earning more will leave them worse off due to ‘bracket creep’. But with a marginal system, only the income above each threshold is taxed at the higher rate, not your entire salary. Here are some quick takeaways: