Marginal Tax Rate
Your marginal tax rate is the tax rate that applies to your next (or last) dollar of income — in other words, the rate of the highest tax bracket you fall into. In NZ's progressive system, different portions of your income are taxed at different rates, and only the income within each bracket is taxed at that bracket's rate.
For 2026-27, the marginal rates are: 10.5% (up to $15,600), 17.5% ($15,601–$53,500), 30% ($53,501–$78,100), 33% ($78,101–$180,000), and 39% (over $180,000). If you earn $80,000, your marginal rate is 33% — but that 33% only applies to the $1,900 above $78,100.
The marginal rate is important when evaluating the tax impact of additional income — such as a bonus, pay rise, or side income. Each extra dollar will be taxed at your marginal rate, not your effective rate. This is also the rate relevant for choosing your correct secondary tax code and PIR.
How it works
Your marginal rate is the number that matters most when you're evaluating extra income — a bonus, overtime, a pay rise, or side income — because that additional income is taxed at your marginal rate, not your lower effective rate. This makes the marginal rate the right figure to use when estimating how much of a raise or bonus you'll actually keep.
The marginal rate also drives some practical decisions elsewhere in the tax system. Choosing the correct secondary tax code for a second job is really about matching PAYE deductions to your marginal rate on that combined income, and choosing your Prescribed Investor Rate for PIE investments follows similar logic — getting either wrong means either overpaying through the year or facing a bill at reconciliation.
A common misconception is that moving into a higher tax bracket means your whole income suddenly gets taxed at the higher rate — it doesn't. Only the income earned above the threshold for that bracket is taxed at the new marginal rate; everything below the threshold keeps being taxed at the lower rates it always was.
Example: marginal rate on a $200,000 salary
On $200,000 for 2026-27, only the income above $180,000 falls into the top 39% bracket — the $20,000 between $180,001 and $200,000 is taxed at 39%, adding $7,800 in tax from that slice alone.
Every dollar below $180,000 is still taxed at the lower brackets it always was — the 39% marginal rate doesn't reach back and apply to the whole $200,000.
Frequently asked questions
Does moving into a higher tax bracket mean all my income is taxed at that rate?
No — only the portion of your income that falls above the bracket threshold is taxed at the new, higher marginal rate; income below that threshold keeps being taxed at the lower brackets.
How does my marginal rate affect a bonus or pay rise?
Extra income like a bonus or pay rise is taxed at your marginal rate rather than your effective rate, since it sits on top of the income you already earn.
Why does my secondary tax code depend on my marginal rate?
Secondary tax codes are designed to withhold roughly the right amount at your combined-income marginal rate, so you're not left with a large bill or refund once IRD reconciles your income at year end.
Related Terms
Effective Tax Rate
The effective tax rate (also called the average tax rate) is your total income tax divided by your gross income, expressed as a percentage.
Income Tax
New Zealand income tax is calculated using a progressive bracket system.
PIR
Your Prescribed Investor Rate (PIR) is the tax rate applied to income earned from Portfolio Investment Entities (PIEs), including KiwiSaver funds, PIE term deposits, and managed funds.
Try the calculator
Use our free tool to see how marginal tax rate affects your tax.