Every dollar you earn in Australia is taxed a little differently. The first $18,200 of your income is tax-free, the next chunk is taxed at 16 cents in the dollar, and the rate climbs from there — which is why two people earning very different salaries can pay wildly different amounts of tax. If you’ve ever looked at your payslip and wondered exactly where your money goes, this guide walks you through Australia’s 2025-26 income tax brackets with plain-English explanations and real worked examples.
The current rates come from the Stage 3 tax cuts, which took effect on 1 July 2024 and remain unchanged for the 2025-26 financial year. Below you’ll find the full bracket table, a step-by-step example of how marginal rates work, what the Medicare levy adds, how the Low Income Tax Offset can reduce your bill, and what’s already legislated to change in 2026-27.
2025-26 Income Tax Brackets at a Glance
These rates apply to Australian residents for tax purposes for the financial year running 1 July 2025 to 30 June 2026. They cover income tax only — the 2% Medicare levy sits on top for most taxpayers, and we’ll cover that separately below.
| Taxable income | Tax on this income |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,288 plus 30c for each $1 over $45,000 |
| $135,001 – $190,000 | $31,288 plus 37c for each $1 over $135,000 |
| $190,001 and over | $51,638 plus 45c for each $1 over $190,000 |
The key thing to notice is that these are marginal rates. You don’t pay 30% on your entire income just because your salary sits in the 30% bracket — each rate applies only to the dollars inside its own band. That’s the single most misunderstood part of the Australian tax system, and understanding it can save you from some expensive myths.
How Marginal Tax Rates Actually Work
Think of the brackets as a staircase. As your income climbs, each new step is taxed at a higher rate — but the steps you’ve already climbed keep their original, lower rates. Let’s walk through a concrete example with an $80,000 salary, which is close to what a typical full-time Australian earns.
$80,000 salary, step by step
- First $18,200: taxed at 0%. Tax so far: $0.
- $18,201 – $45,000: 16c on each of these $26,800. That’s $4,288.
- $45,001 – $80,000: 30c on each of these $35,000. That’s $10,500.
- Total income tax: $0 + $4,288 + $10,500 = $14,788.
Notice that even though this person is “in the 30% bracket”, their actual average (effective) tax rate is only about 18.5% of income — because most of their income was taxed at 0% or 16%. Your marginal rate is the rate on your next dollar earned (30% here); your effective rate is the overall percentage you actually pay. The two are very different, and confusing them is how most tax myths get started.
Want to skip the manual maths? You can calculate your exact tax with our free income tax calculator — just enter your salary and it handles every bracket for you.
Don’t Forget the Medicare Levy
The bracket table above covers income tax only. On top of it, most Australian residents pay the Medicare levy: a flat 2% of your taxable income that helps fund the public health system. On an $80,000 salary, that’s an extra $1,600.
A few things worth knowing about the Medicare levy:
- It applies to your entire taxable income, not just the part above a threshold — though low-income earners can qualify for a full exemption or a reduced rate.
- It is separate from the Medicare levy surcharge, which is an extra 1–1.5% charged to higher earners (singles above $113,000, families above $226,000 for 2025-26) who don’t hold private hospital cover.
- When people quote a “top tax rate” of 47%, they’re adding the 45% top marginal rate and the 2% Medicare levy together.
So the true cost of earning $80,000 in 2025-26 is $14,788 in income tax plus $1,600 in Medicare levy — $16,388 in total, leaving $63,612 in take-home pay. You can see the full breakdown for this exact salary on our $80,000 after-tax salary page, or check any salary with the take-home pay calculator.
The Low Income Tax Offset (LITO)
If you earn a modest income, the Low Income Tax Offset (LITO) quietly reduces your tax bill. It’s a non-refundable offset worth up to $700, and it works like this for 2025-26:
- $37,500 or less: the full $700 offset.
- $37,501 – $45,000: $700 minus 5c for each $1 over $37,500.
- $45,001 – $66,667: $325 minus 1.5c for each $1 over $45,000.
- $66,668 and over: no offset.
The practical effect is significant: thanks to LITO, someone earning up to about $22,575 effectively pays no income tax at all, even though the official tax-free threshold is $18,200. If your income falls in this range, it’s worth double-checking your return — the offset is applied automatically when you lodge, but knowing it exists helps you sanity-check the result.
Note that LITO is different from the old Low and Middle Income Tax Offset (LMITO), which expired after the 2021-22 financial year and has not returned.
Worked Examples: What You’d Actually Pay
Let’s put it all together. The table below shows income tax, Medicare levy, total deductions and take-home pay for four common salary levels, assuming an Australian resident with no HECS-HELP debt and no other complications:
| Gross salary | Income tax | Medicare levy (2%) | Total deductions | Take-home pay | Effective rate |
|---|---|---|---|---|---|
| $50,000 | $5,788 | $1,000 | $6,788 | $43,212 | 13.6% |
| $80,000 | $14,788 | $1,600 | $16,388 | $63,612 | 20.5% |
| $100,000 | $20,788 | $2,000 | $22,788 | $77,212 | 22.8% |
| $150,000 | $36,838 | $3,000 | $39,838 | $110,162 | 26.6% |
A couple of patterns jump out. First, the effective rate rises much more gently than the marginal rates suggest — even at $150,000, you’re keeping nearly three-quarters of your pay. Second, each extra dollar is never taxed at more than 47c (45% top rate plus 2% Medicare), so earning more always leaves you with more. Which brings us to the myth that refuses to die.
Common Myths About Tax Brackets
Myth 1: “A pay rise pushed me into a higher bracket, so I’m worse off”
This is mathematically impossible under a marginal system. Suppose you earn $135,000 and get a $1 raise to $135,001. Only that single extra dollar is taxed at 37c — the first $135,000 is taxed exactly as before. You keep 63c of the dollar (before Medicare), so your take-home pay still goes up. A higher bracket can never make you poorer; it just means your next dollars are taxed a bit more.
Myth 2: “My marginal rate is what I pay on everything”
As the $80,000 example showed, being “in the 30% bracket” produced an effective income-tax rate of about 18.5% (20.5% including Medicare). Your marginal rate describes your last dollar, not your whole salary. When comparing job offers or thinking about salary sacrifice, the effective rate is usually the more useful number.
Myth 3: “Overtime isn’t worth it because of tax”
Overtime is simply extra income taxed at your marginal rate. If your marginal rate is 30% plus 2% Medicare, you keep 68c of every overtime dollar. That’s still a clear gain — tax reduces the reward, it never reverses it.
What’s Changing in 2026-27
The 2025-26 brackets are settled, but further cuts are already legislated. From 1 July 2026, the 16% rate on $18,201–$45,000 drops to 15%, and from 1 July 2027 it falls again to 14%. For someone earning $45,000 or more, the first cut alone is worth $268 a year — a modest but real increase in take-home pay with no action required on your part.
These are the final phases of the reform program that began with the Stage 3 cuts. No other bracket changes are currently legislated, though as always, future budgets can alter the picture.
Frequently Asked Questions
What are the Australia income tax brackets for 2025-26?
For residents: 0% up to $18,200; 16% from $18,201 to $45,000; 30% from $45,001 to $135,000; 37% from $135,001 to $190,000; and 45% above $190,000. A 2% Medicare levy applies on top for most taxpayers.
How much tax do I pay on $80,000 in Australia?
In 2025-26, a resident earning $80,000 pays $14,788 in income tax plus $1,600 in Medicare levy — $16,388 total — leaving $63,612 in take-home pay. That’s an effective rate of about 20.5%.
Is the Medicare levy included in the tax brackets?
No. The brackets cover income tax only. The 2% Medicare levy is calculated separately on your full taxable income and added to your bill (low-income earners may be exempt or pay a reduced rate).
What is the effective tax-free threshold with LITO?
While the official tax-free threshold is $18,200, the Low Income Tax Offset (up to $700) means residents earning up to roughly $22,575 pay no net income tax in 2025-26.
Do these brackets apply to non-residents?
No. Non-residents for tax purposes face different rates with no tax-free threshold — tax starts from the first dollar. The table in this guide applies to Australian residents only.
Will tax rates change next financial year?
Yes — the 16% bracket is legislated to drop to 15% from 1 July 2026 and to 14% from 1 July 2027. All other brackets stay the same under current law.
The Bottom Line
Australia’s 2025-26 tax brackets are simpler than they look: five bands, marginal rates from 0% to 45%, a 2% Medicare levy on top, and a $700 offset softening the blow for lower earners. The two ideas that matter most are that only the dollars inside each band are taxed at that band’s rate, and that earning more can never leave you worse off.
Ready to see your own numbers? Calculate your exact tax with our free income tax calculator, or use the take-home pay calculator to see what lands in your bank account each pay cycle.