Quick reference
Effective rate vs marginal rate — the critical distinction
In a progressive tax system, different slices of income are taxed at different rates. The first slice is taxed at the lowest rate. Income above the first bracket threshold is taxed at a higher rate. Income above the second threshold at an even higher rate, and so on.
The marginal rate is the rate that applies to the last (highest) euro of income. In the Netherlands in 2025, income above 75.518 is taxed at 49,50%. A person earning 80.000 gross has a marginal rate of 49,50%. But they do not pay 49,50% on all 80.000. They pay 36,97% on the first 75.518 and 49,50% only on the remaining 4.482.
The effective rate is the weighted average. It equals total tax paid divided by total income. For the 80.000 earner, total Box 1 tax (before heffingskortingen) would be approximately 29.500. Effective rate: 29.500 / 80.000 = 36,9%. The effective rate of 36,9% is much lower than the marginal rate of 49,50%.
Heffingskortingen (tax credits in the Netherlands) reduce the actual tax due further, pushing the effective rate below the calculation above. After applying the algemene heffingskorting and arbeidskorting, the true effective rate for a 80.000 earner in the Netherlands is approximately 28 to 30%.
The practical importance: when deciding whether to accept a pay rise, take on additional freelance work, or make a pension contribution, what matters is the marginal rate — the rate on the additional income or deduction. When calculating total take-home pay or comparing cost of living, the effective rate is the relevant figure.
Effective tax rate formula
Worked examples
Tax on 65.000: all income in bracket 1 (36,97%): 65.000 x 36,97% = 24.031. Algemene heffingskorting (income-dependent, approximately 1.200 at this income level) + arbeidskorting (approximately 2.900): total kortingen approximately 4.100. Net tax: 24.031 - 4.100 = 19.931. Effective rate: 19.931 / 65.000 = 30,7%. Marginal rate: 36,97%. The kortingen reduce effective rate by approximately 6 percentage points.
Bracket 1 (up to 75.518): 75.518 x 36,97% = 27.929. Bracket 2 (90.000 - 75.518 = 14.482): 14.482 x 49,50% = 7.169. Total before kortingen: 35.098. Kortingen at this income level are largely phased out (approximately 600 combined). Net tax: 34.498. Effective rate: 34.498 / 90.000 = 38,3%. Marginal rate: 49,50%. Even at a marginal rate of 49,5%, the effective rate is only 38%.
Taxable income: 55.000 - 12.570 = 42.430. Basic rate (20% on 37.700): 7.540. Higher rate (40% on 42.430 - 37.700 = 4.730): 1.892. Total tax: 9.432. Effective rate: 9.432 / 55.000 = 17,1%. National Insurance adds approximately 3.800. Total deductions: 13.232. Effective combined rate: 13.232 / 55.000 = 24,1%. The 40% marginal rate sounds alarming but the effective rate is far lower.
Income Tax Calculator
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Effective vs marginal rates — Netherlands 2025
| Gross Income | Marginal Rate | Estimated Effective Rate (after kortingen) | Take-home |
|---|---|---|---|
| 30.000 | 36,97% | ~18% | ~24.600 |
| 45.000 | 36,97% | ~23% | ~34.650 |
| 60.000 | 36,97% | ~28% | ~43.200 |
| 75.000 | 36,97% | ~31% | ~51.750 |
| 90.000 | 49,50% | ~37% | ~56.700 |
| 120.000 | 49,50% | ~42% | ~69.600 |
Common mistakes with effective and marginal tax rates
Methodology
Netherlands calculations use 2025 Box 1 rates: 36,97% up to 75.518, 49,50% above. Heffingskortingen (algemene heffingskorting and arbeidskorting) applied using income-dependent phase-out tables. UK calculations use 2025/26 rates and thresholds. All calculations represent single taxpayer with no additional deductions beyond the stated allowances.
Effective tax rates vary based on deductions, allowances, partner income, and other income sources. The rates shown are indicative for a single taxpayer with employment income only. ZZP workers, homeowners (hypotheekrenteaftrek), and those with other deductions will have different effective rates.
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Frequently asked questions
Formula based on standard mathematical and financial methods. Results are for informational purposes. Last reviewed May 2026. Version 1.