How to use the Income Tax
- Enter gross annual income before deductions.
- Enter your personal allowance or standard deduction.
- Apply any additional deductions or pre-tax contributions.
- Read the total tax, the marginal rate and the effective rate separately.
How the calculation works
Taxable income is gross income less allowances and deductions. That figure is then sliced across the bracket thresholds, with each slice taxed at its own rate and the results summed. The marginal rate is the rate applied to the topmost slice; the effective rate is total tax divided by gross income, and it is always lower in a progressive system.
The distinction matters for decisions. A pension contribution or charitable gift saves tax at the marginal rate, so a 40% taxpayer keeps 40 of every 100 contributed. But affordability and budgeting should use the effective rate, because that is the share of your income actually leaving. Estimates here exclude payroll and social-insurance levies, local taxes and credits, which vary by jurisdiction.
Tax = Σ (income within bracket × bracket rate) ; effective rate = total tax / gross incomeSource: Progressive marginal bracket methodology as used by IRS Publication 17 and HMRC income tax bands.
Worked example
Gross income 62,000 with a 12,570 allowance, 20% up to 50,270 and 40% above it.
- Taxable income = 62,000 − 12,570 = 49,430.
- Basic band = 37,700 × 20% = 7,540.
- Higher band = (49,430 − 37,700) × 40% = 4,692.
- Total = 12,232.
Marginal rate 40%, but the effective rate is 12,232 / 62,000 = 19.7%.
Frequently asked questions
Why is my effective rate lower than my bracket?+
Because only the income above each threshold is taxed at the higher rate. Earlier slices keep their lower rates.
Does a raise ever leave me worse off?+
Under pure bracket progression, no — only the extra income is taxed higher. Cliff-edge benefit withdrawals, not brackets, cause genuine losses.
Are social-security contributions included?+
No. Payroll and national-insurance style levies are separate charges with their own thresholds.
How accurate is this?+
It is an estimate for planning. Credits, local taxes and unusual income types need a full return or an accountant.
Last reviewed August 31, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.