Australian income tax explained: brackets, rates and what you actually pay

The most persistent myth in Australian tax is that moving into a higher bracket taxes your whole income at the higher rate. It doesn't — and once you see how marginal brackets actually work, most tax anxiety evaporates.

The 2025–26 brackets

For Australian residents:

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

Each rate applies only to the dollars inside that band. Someone earning $100,000 doesn't pay 30% of $100,000 — they pay nothing on the first $18,200, 16% on the next $26,800, and 30% on the rest, totalling $20,788. Add the 2% Medicare levy ($2,000) and take-home pay is $77,212.

Marginal vs average rates

Your marginal rate is what your next dollar is taxed at; your average rate is what your whole income was taxed at. On $100,000 the marginal rate is 30% (32% with Medicare), but the average is only about 22.8%. This is why a pay rise is always worth taking — only the new dollars are taxed at the top of your scale, never the old ones.

Offsets, the levy, and the rest of the picture

The bracket table isn't the whole bill. Lower earners get the low income tax offset (up to $700, phasing out by $66,667), which the ATO applies automatically. Most residents add the 2% Medicare levy, and higher earners without private hospital cover can add the Medicare levy surcharge on top. HECS repayments come out through the same system too. That's why calculators that only apply the bracket table can be a thousand dollars off.

Residents, non-residents and working holiday makers

Non-residents get no tax-free threshold and pay 30% from the very first dollar (but no Medicare levy). Working holiday makers pay a flat 15% on income up to $45,000, then ordinary rates. Residency for tax purposes is about where you live and settle — not citizenship — and it materially changes the maths.

What's changing next

From 1 July 2026, the 16% rate falls to 15%, and it's legislated to drop again to 14% from 1 July 2027 — worth up to $268 a year each step for anyone earning above $45,000. Our calculators support 2023–24 through 2026–27, so you can compare any two years side by side.