Tax Guide/How tax works
Marginal vs. average tax rate
Updated November 4, 2026
Marginal rate is the combined rate on your next dollar of income. Use it to judge a bonus, extra work or an RRSP contribution.
Average rate is your total tax divided by your total income. It shows the share of your income that went to tax.
Your average rate is lower than your marginal rate once your income reaches a higher bracket, because the earlier portions were taxed at lower rates.
Example
Someone with $75,000 of taxable income has a federal marginal rate of 20.5%. Their federal tax before credits is about $11,571, an average of about 15.4%.
How your income fills the tax brackets
Income fills one bucket at a time, and each bucket has its own rate. Shows 2026 federal tax only, before credits and provincial tax.
14%
$58.5k
20.5%
$117k
26%
$181k
29%
$258k
33%
Above
Federal tax
$11,571
Average rate
15.4%
Marginal rate
20.5%
Your next dollar is taxed at your marginal rate, 20.5%. Your average rate is lower once income reaches a higher bracket, because the earlier buckets keep their lower rates.