Marginal tax rate

The marginal tax rate is the rate that applies to the next currency unit earned. In a progressive tax system, earlier income is taxed at lower rates, so the marginal rate is almost always higher than the average (effective) rate paid across total income.

Example: a UK earner on £55,000 has been pushed past the £50,270 higher-rate threshold by £4,730. The next £1 they earn is taxed at 40% income tax + 2% National Insurance = 42% marginal. But because the first £12,570 was tax-free and £37,700 was at the basic 20% rate, their average effective rate is roughly 23%, not 42%.

Marginal rate matters for decisions about overtime, bonuses, pension contributions, or salary-sacrifice schemes — those reduce or add to gross pay one unit at a time, so the marginal rate is the relevant multiplier. Each salary-bracket calculator on this site shows the exact marginal rate at that gross.