Ask ten people what tax bracket they are in and most will tell you a single number — "I'm on 30 cents in the dollar" — as if their whole salary is taxed at that rate. It isn't. Australia taxes income in slices, and understanding how the slices stack up is the difference between dreading a pay rise and knowing exactly how much of it you'll keep.
One wrinkle before the numbers: the Australian tax year runs from 1 July to 30 June, so "2026" can mean two different things. The 2025–26 financial year covers 1 July 2025 to 30 June 2026 — that's the return you lodge after 30 June 2026. The 2026–27 year (1 July 2026 to 30 June 2027) is the one you're earning in right now, and it comes with a small but real rate cut. This guide covers both.
The resident tax brackets
These rates apply to Australian residents for tax purposes. Only the income that falls inside each band is taxed at that band's rate.
| Taxable income | Rate — 2025–26 | Rate — 2026–27 |
|---|---|---|
| $0 – $18,200 | 0% (tax-free) | 0% (tax-free) |
| $18,201 – $45,000 | 16% | 15% |
| $45,001 – $135,000 | 30% | 30% |
| $135,001 – $190,000 | 37% | 37% |
| $190,001 and over | 45% | 45% |
The only change between the two years is the second bracket, which drops from 16% to 15% from 1 July 2026. That cut was legislated as the Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024 and follows the larger "Stage 3" reshaping of the brackets that landed on 1 July 2024. A further cut of the second bracket to 14% is already legislated for 1 July 2027.
Because the 15% rate only touches the $18,201–$45,000 band — a span of $26,800 — the maximum benefit is fixed: $268 a year for anyone earning $45,000 or more. Below $45,000 you get a proportional slice of that. It's a modest saving, not a windfall, and it's worth knowing so you're not surprised when it barely moves your fortnightly pay.
How the slices actually work
Take a $90,000 salary in 2025–26. Your marginal rate — the rate on your last dollar earned — is 30%, but you don't pay 30% on the whole $90,000. The maths runs bracket by bracket:
- First $18,200: taxed at 0% → $0
- Next $26,800 (up to $45,000): taxed at 16% → $4,288
- Remaining $45,000 (from $45,001 to $90,000): taxed at 30% → $13,500
That's $17,788 in income tax. Add the 2% Medicare levy ($1,800) and total tax comes to $19,588 — leaving take-home pay of $70,412. Your effective rate is 21.8%, well under the 30% headline figure, because so much of your income was taxed at lower rates first. Under the 2026–27 rate, the same salary saves the full $268, nudging take-home to $70,680.
The Medicare levy
Most residents pay a 2% Medicare levy on top of income tax to help fund the public health system. Low earners are shielded: for 2025–26, singles with taxable income of $28,011 or less pay nothing, and the levy phases in gradually between $28,011 and $35,014 before the full 2% applies above that. Higher earners without private hospital cover may also face the separate Medicare Levy Surcharge — a different charge that this guide (and most simple calculators) leaves out.
The Low Income Tax Offset
The Low Income Tax Offset (LITO) quietly does a lot of work at the bottom of the scale. It's worth up to $700 for incomes up to $37,500, then tapers away — 5 cents per dollar to $325 at $45,000, then 1.5 cents per dollar until it disappears at about $66,667. Crucially, LITO reduces the tax you owe dollar for dollar (it's an offset, not a deduction), which is why plenty of people earning well above the $18,200 threshold still pay little or no income tax.
What your take-home looks like
Here's how tax, the Medicare levy and LITO combine across a few common incomes, using 2025–26 rates.
| Taxable income | Income tax (after LITO) | Medicare levy | Take-home | Effective rate |
|---|---|---|---|---|
| $45,000 | $3,963 | $900 | $40,137 | 10.8% |
| $90,000 | $17,788 | $1,800 | $70,412 | 21.8% |
| $135,000 | $31,288 | $2,700 | $101,012 | 25.2% |
| $190,000 | $51,638 | $3,800 | $134,562 | 29.2% |
Want your own number? The Australia income tax calculator runs the same brackets and lets you switch between the two financial years to see the rate cut applied.
One thing that isn't tax: super
It's easy to confuse superannuation with tax because both come out around payday, but super isn't a tax and it isn't deducted from the salary figures above. Since 1 July 2025 employers must pay a Superannuation Guarantee of 12% of your ordinary time earnings on top of your wage. On $90,000 that's an extra $10,800 going into your fund each year — money for later, not money the taxman keeps.
Key takeaways
- Australia taxes income in slices; your effective rate is almost always lower than the bracket you "top out" in.
- The 2025–26 and 2026–27 brackets are identical except the second band, which falls from 16% to 15% on 1 July 2026 — a maximum saving of $268 a year.
- The 2% Medicare levy and the Low Income Tax Offset both change your final bill, especially at lower incomes.
- Superannuation (12% since July 2025) is paid on top of your salary and isn't part of your income tax.
This is general information for planning, not tax advice. Rates were checked against the ATO's published resident tax rates. Confirm your own position with the ATO or a registered tax agent before lodging.