Marginal vs effective tax rate: what you really pay on your next dollar

When people talk about their tax rate, they usually mean one of two numbers without saying which. On a salary of $85,000 in Ontario, 25.1% of your pay goes to income tax, CPP and EI. That's your effective rate. Of the next dollar you earn, though, 29.6% goes the same way, and that's your marginal rate. Both numbers are correct. They answer different questions, and mixing them up is behind most of the confusion about raises, overtime and bonuses.

Your income is taxed in layers

Canada taxes income progressively, which means your salary isn't taxed at one rate. It's split into layers, called brackets, and each layer has its own rate. For 2026, the federal government taxes the first $58,523 of taxable income at 14%, the layer from there up to $117,045 at 20.5%, and so on up to 33% on income over $258,482. Your province adds its own set of layers on top.

The important part is that a higher rate only applies to the dollars inside its layer. Earning enough to reach a new bracket doesn't change the tax on anything you earned below it. On top of that, the basic personal amount means the first $16,452 or so of your income carries no federal tax at all, and each province has its own version.

Your effective rate is the share of your whole salary

Your effective rate is everything taken off your pay, divided by your salary. At $85,000 in Ontario, income tax, CPP and EI come to $21,321, or 25.1% of your pay. Because your first dollars are taxed lightly or not at all, the effective rate sits below the rate on your top dollars, and usually far below it. Even at $250,000, it's 37.4%, while the next dollar costs 49.8%.

There's a neat way to think about it: your effective rate is the average of the marginal rates on every dollar you've earned so far. That's why it climbs slowly and smoothly while the marginal rate jumps around.

Our calculator also shows an effective income-tax rate (18.3% at $85,000 in Ontario), which leaves CPP and EI out. In this guide we include them, so that both rates measure the same thing: money that never reaches your bank account.

Your rate on the next dollar vs. on your whole salary, 2026

Province

OntarioB.C.Alberta

At $85,000 in Ontario

• 29.6%True marginal rate · your next dollar
• 25.1%Effective rate · your whole salary
• 29.6%Bracket rate · what most calculators show

The numbers for Ontario

Salary	True marginal	Effective	Bracket
$10,000	7.6%	5.5%	19.1%
$20,000	24.5%	7.1%	19.1%
$30,000	20.5%	12.5%	19.1%
$40,000	30.1%	16.7%	19.1%
$50,000	29.8%	19.7%	19.1%
$60,000	35.7%	21.1%	29.6%
$70,000	34.4%	23.2%	29.6%
$80,000	32.5%	24.6%	29.6%
$90,000	29.6%	25.3%	29.6%
$100,000	31.5%	25.8%	29.6%
$110,000	33.9%	26.3%	31.7%
$120,000	43.4%	27.2%	37.2%
$130,000	43.4%	28.5%	37.2%
$140,000	43.4%	29.5%	37.2%
$150,000	43.4%	30.4%	37.2%
$160,000	45.0%	31.4%	38.2%
$170,000	45.0%	32.1%	38.2%
$180,000	45.0%	32.9%	38.2%
$190,000	48.3%	33.6%	41.2%
$200,000	48.3%	34.4%	41.2%
$210,000	48.3%	35.1%	41.2%
$220,000	48.3%	35.7%	41.2%
$230,000	49.8%	36.3%	42.2%
$240,000	49.8%	36.9%	42.2%
$250,000	49.8%	37.4%	42.2%

Your true marginal rate is the share of your next dollar

Most calculators report your marginal rate as the federal and provincial bracket rates added together. At $85,000 in Ontario that's 29.6%. It's a reasonable starting point, but it leaves out several things that change with every dollar you earn, so we measure the true marginal rate directly: we calculate your take-home pay, calculate it again with a little more income, and look at how much of the difference you keep. Four things pull the true rate away from the bracket rate.

CPP and EI

Until you reach the yearly maximums, every extra dollar also pays CPP and EI, together 7.58% of your pay. EI stops once your earnings pass $68,900, and CPP's second tier, CPP2, charges 4% from $74,600 up to $85,000 and then stops too. That's why lower and middle incomes pay a few points more on the next dollar than the brackets suggest. It also explains the bottom of the chart: at $15,000 in Ontario, the bracket rate says 19.1%, but you don't owe any income tax yet, so the only thing your next dollar pays is CPP and EI, a true marginal rate of 7.6%.

Credits that shrink as you earn more

Some tax credits are meant for lower incomes and get smaller as your income rises, which works just like an extra tax on each new dollar. Ontario's LIFT credit shrinks by 5% of every dollar earned over $32,500, and B.C.'s tax reduction credit shrinks by 3.56% of every dollar over $25,570. The effect can be surprising. In Ontario at $45,000, the bracket rates add up to 19.1%, but the true marginal rate is 30.1%, higher than the 29.6% at $90,000. At the other end, the federal basic personal amount shrinks for incomes between $181,440 and $258,482, which adds a little to the marginal rate there too.

The Ontario surtax

Ontario charges a surtax, a tax on your Ontario tax, once that tax passes $5,818, with a second step at $7,446. Because it grows with your Ontario tax, it raises the rate on every new dollar from then on. At $150,000 in Ontario, the bracket rate is 37.2%, but the true marginal rate is 43.4%.

The Ontario Health Premium

The Health Premium doesn't rise smoothly. It climbs in steps, and the steepest ones take 25% of each extra dollar over a band of just a few hundred dollars, starting at taxable incomes of $48,000, $72,000 and $200,000. Those are the narrow spikes on the Ontario chart, the tallest reaching 66.9% (the chart averages each $500, and on the steepest few hundred dollars themselves the rate is 73.3%). They look dramatic, but each one is over within a few hundred dollars and costs no more than $150 in total.

A raise never costs you money

Even on those steepest dollars, you keep 26.7% of each one, and nowhere in Ontario, B.C. or Alberta does the marginal rate reach 100%. So a raise always leaves you with more money than before. If your salary in Ontario goes from $85,000 to $90,000, your take-home pay rises by $3,517 of the $5,000, which means you keep 70.3% of the raise.

What does change is your effective rate, which goes from 25.1% to 25.3%. That isn't because your old salary is suddenly taxed more. The new dollars are taxed at your marginal rate, which is higher than your average, so they pull the average up a little. Everything you were already earning is taxed exactly as before. Our guide to raises and tax brackets shows where your own raise goes.

Which rate to use, and when

Each rate is the right tool for a different kind of question.

• Your effective rate is the big picture. Use it for budgeting, for understanding what share of your salary you actually live on, and for comparing your overall tax load across provinces. At $85,000, it's 25.1% in Ontario, 24.0% in British Columbia and 24.7% in Alberta.
• Your true marginal rate is for decisions at the edge: a raise, an overtime shift, a bonus, a side gig or a job offer for a little more money. At $85,000 in Ontario, you keep about 70 cents of each new dollar, and that's the number to weigh against the extra hours or the commute.

Comparing provinces is where both rates matter at once. The Ontario vs Alberta comparison shows who keeps more at every salary, and why the answer changes as income rises.

See your own numbers

The calculator shows your take-home pay, your effective income-tax rate and your true marginal rate as you type, along with how much of your next $1,000 you'd keep. Every salary page also walks through the layers one by one, and $85,000 in Ontario is a good place to see it end to end. If you'd like to know exactly how we measure the true marginal rate, the methodology explains each step.

Your effective rate tells you where you stand today. Your marginal rate tells you what your next decision is worth, and knowing the difference is what lets you make that decision with confidence.