Who This Guide Is For
This guide is for anyone who earns income in Australia — whether you're a full-time employee, casual worker, contractor, sole trader, or international student with a part-time job. If you've ever looked at your payslip and wondered how much tax should be taken out, or you're planning your finances for the coming year, understanding Australia's marginal tax bracket system is the first step.
We'll cover the official FY2025–26 tax rates, how the progressive tax system actually works (no, you don't pay the top rate on your entire salary), Medicare Levy thresholds, the Low Income Tax Offset (LITO), and common mistakes that cost people money every year.
Australian Resident Tax Rates FY2025–26
The following rates apply to Australian residents for tax purposes. These are the brackets that determine how much tax is withheld from your pay.
| Taxable Income | Tax Payable |
|---|---|
| $0 – $18,200 | Nil (tax-free threshold) |
| $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+ | $51,638 plus 45c for each $1 over $190,000 |
ATO guidelines: These rates exclude the Medicare Levy (2% of taxable income). The tax-free threshold of $18,200 is reduced for part-year residents. Visit ato.gov.au for the official tax tables.
Foreign Resident Tax Rates
If you're a foreign resident for tax purposes, different (higher) rates apply — and you don't get the tax-free threshold:
| Taxable Income | Tax Payable |
|---|---|
| $0 – $135,000 | 30c for each $1 |
| $135,001 – $190,000 | $40,500 plus 37c for each $1 over $135,000 |
| $190,001+ | $60,850 plus 45c for each $1 over $190,000 |
What changed under Stage 3
A quick refresher on what shifted from the pre-July-2024 rates:
| Bracket | Old rate (pre-FY2024-25) | New rate (FY2025-26) |
|---|---|---|
| $18,201 – $45,000 | 19% | 16% |
| $45,001 – $120,000 | 32.5% | 30% (now extends to $135k) |
| $120,001 – $180,000 | 37% | 37% (now starts at $135k) |
| $180,001+ | 45% | 45% (now starts at $190k) |
Two brackets got rate cuts (16% and 30%), and two thresholds shifted upward ($135k and $190k). The 45% top rate stayed the same but kicks in $10,000 later.
How Tax Brackets Actually Work
One of the most common misconceptions: \"If I earn $50,000, I pay 30% on all of it.\" This is wrong. Australia uses a progressive tax system — you only pay the higher rate on the portion of your income that falls into that bracket.
Calculation Example
Let's say your taxable income is $85,000:
| Income Band | Rate | Tax |
|---|---|---|
| $0 – $18,200 | 0% | $0 |
| $18,201 – $45,000 | 16% | $4,288 |
| $45,001 – $85,000 | 30% | $12,000 |
| Total Tax | $16,288 |
Your effective tax rate is $16,288 ÷ $85,000 = 19.2% — not 30%. Plus Medicare Levy: $85,000 × 2% = $1,700, for a total of $17,988.
Worked examples at five income levels
All figures FY2025-26, residents only, before Medicare Levy and any offsets:
| Taxable income | Income tax | Effective rate | Marginal rate |
|---|---|---|---|
| $30,000 | $1,888 | 6.3% | 16% |
| $60,000 | $8,788 | 14.6% | 30% |
| $100,000 | $20,788 | 20.8% | 30% |
| $150,000 | $36,838 | 24.6% | 37% |
| $200,000 | $56,138 | 28.1% | 45% |
The gap between marginal and effective rates widens dramatically at higher incomes — a $200k earner sits in the 45% top bracket but only loses 28.1% of total income to income tax (before Medicare Levy).
What About the Medicare Levy?
The Medicare Levy is 2% of your taxable income, applied on top of your income tax. It helps fund Australia's public healthcare system.
Medicare Levy Reduction and Exemption Thresholds
You may pay a reduced levy or nothing if your income is below these thresholds (FY2025–26, singles):
| Income | Medicare Levy |
|---|---|
| Below $28,011 | Nil |
| $28,011 – $35,013 | Reduced (phased in) |
| Above $35,013 | Full 2% |
Higher thresholds apply for seniors, pensioners, and families with children.
If you don't have private health insurance and your income exceeds $101,000 (singles) or $202,000 (families), you may also pay the Medicare Levy Surcharge — an additional 1% to 1.5%.
Medicare Levy Surcharge — the extra 1–1.5%
If your income exceeds $101,000 (singles) or $202,000 (families) and you don't have appropriate private hospital cover, you'll pay an additional Medicare Levy Surcharge on top of the standard 2%:
| Singles | Families | MLS rate |
|---|---|---|
| ≤ $101,000 | ≤ $202,000 | 0% |
| $101,001 – $118,000 | $202,001 – $236,000 | 1.0% |
| $118,001 – $158,000 | $236,001 – $316,000 | 1.25% |
| $158,001+ | $316,001+ | 1.5% |
For a single earner on $130,000 with no private cover, that's an extra $1,625/year — often more than a basic hospital cover policy would cost.
Low Income Tax Offset (LITO)
The Low Income Tax Offset reduces the tax you pay if your taxable income is below $66,667. Here's how it works:
| Taxable Income | LITO Offset |
|---|---|
| $37,500 or less | Up to $700 |
| $37,501 – $45,000 | $700 minus 5c per $1 over $37,500 |
| $45,001 – $66,667 | $325 minus 1.5c per $1 over $45,000 |
| Above $66,667 | Nil |
Tax-Free Threshold — Do You Qualify?
The $18,200 tax-free threshold applies to:
- Australian residents for the full financial year
- Most Australian citizens and permanent residents
You don't get the full threshold if:
- You're a foreign resident (0% threshold — taxed from the first dollar)
- You arrived or left Australia part-way through the year (pro-rata)
- You're a working holiday maker (taxed at 15% on first $45,000)
Working Holiday Maker Rates
Working holiday makers (417 / 462 visa) are taxed at 15% on the first $45,000, then standard foreign resident rates above that — and no tax-free threshold applies.
Common Mistakes When Calculating Tax
| Mistake | Why It's Wrong | What to Do Instead |
|---|---|---|
| Thinking your top rate applies to your whole salary | Australia uses progressive brackets — only income in each bracket is taxed at that rate | Calculate each bracket separately or use the ATO's tax withheld calculator |
| Forgetting the Medicare Levy | The 2% levy is on top of income tax, adding hundreds or thousands | Always add 2% to your estimated tax unless you qualify for reduction/exemption |
| Claiming the tax-free threshold on a second job | Only your primary employer should apply the threshold — secondary jobs use \"no tax-free threshold\" withholding | Check both payslips and your TFN declaration |
| Mixing up resident and foreign resident rates | Tax residency is not the same as immigration status — and getting it wrong means a tax bill shock | Refer to ATO's residency tests or consult a registered tax agent |
Records to Keep
- Payment summaries / income statements from all employers (available via myGov)
- Bank interest statements
- Dividend statements from shares or ETFs
- Any PAYG payment summaries from Centrelink or other government payments
- Records of deductible expenses (receipts, invoices, logbooks)
Complex situation? a registered tax agent (see the directory)
Quick Checklist
- Know your residency status for tax purposes (resident, foreign resident, or working holiday maker?)
- Calculate your taxable income (gross income minus deductions)
- Find your tax bracket using the table above
- Add Medicare Levy (2%) unless you qualify for reduction
- Check if you're eligible for LITO (income under $66,667)
- Add Medicare Levy Surcharge if applicable (no private health insurance + income over $101,000)
- Compare your estimate with the ATO tax withheld calculator
- Still unsure? See our full decision guide
How much tax will I actually pay on my salary?
Jump straight to the worked-out numbers for your income level — each page shows tax payable, Medicare levy, and take-home pay for FY2025-26:
$30k · $45k · $60k · $70k · $80k · $90k · $100k · $120k · $135k · $150k · $180k · $200k
*Disclaimer: This is general information only. Consult a registered tax agent for your specific situation. Tax rates and thresholds are current as of FY2025–26. a registered tax agent (see the directory)