Australia taxes personal income using a system of brackets. It sounds complicated, but the core idea is simple — and understanding it clears up the most common myth in Australian tax: the belief that earning more, or moving "into a higher bracket", can somehow leave you worse off. It can't, and this guide explains why.
The short answer
Australia uses a progressive income tax system. Your income is divided into bands, and each band is taxed at its own rate. You don't pay one single rate on your whole income — only the dollars that fall inside a particular band are taxed at that band's rate. So when someone says they're "in the 30% tax bracket", it doesn't mean 30% of their income disappears. It means 30% is the rate applied to their next dollar earned.
The 2025–26 Australian tax brackets
For the 2025–26 financial year (1 July 2025 to 30 June 2026), these are the income tax rates for Australian residents:
| Taxable income | Tax on this income |
|---|---|
| $0 – $18,200 | Nil — the tax-free threshold |
| $18,201 – $45,000 | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,288 + 30c for each $1 over $45,000 |
| $135,001 – $190,000 | $31,288 + 37c for each $1 over $135,000 |
| $190,001 and over | $51,638 + 45c for each $1 over $190,000 |
These are income tax rates only — they don't include the 2% Medicare levy, which we'll come to below.
How the brackets actually work — a worked example
Say you earn $90,000. It's tempting to think: "$90,000 sits in the 30% bracket, so I pay 30% — that's $27,000." That's wrong, and it's wrong by a lot.
Here's what actually happens. Your $90,000 is sliced into pieces, and each piece is taxed at its own band's rate:
So the income tax on $90,000 is $17,788 — not $27,000. Only the portion of your income above $45,000 is taxed at 30%; the income below that is taxed far more lightly, and the first $18,200 isn't taxed at all. This is the whole point of a bracket system, and it's why crossing into a higher bracket can never reduce your take-home pay.
The tax-free threshold
The first $18,200 you earn each financial year is completely tax-free. This is the tax-free threshold, and most people claim it through their main job — it's the question on the form when you start work: "Do you want to claim the tax-free threshold from this payer?" If you hold two jobs at once, you generally only claim it from one, which is why a second job can feel heavily taxed: the second employer withholds tax from your very first dollar, because your tax-free threshold is already used up elsewhere.
Marginal rate vs effective rate
This distinction is where most of the "tax bracket" confusion comes from. There are two different rates worth knowing:
- Your marginal rate is the rate charged on your next dollar of income — the top bracket your income reaches. On $90,000, that's 30%.
- Your effective rate is the total tax you pay divided by your total income. On $90,000, that's $17,788 ÷ $90,000, or about 19.8%.
Your effective rate is always lower than your marginal rate, because most of your income is taxed in the lower bands. And when you get a pay rise, only the new income is taxed at your marginal rate — your existing income is completely unaffected. A pay rise always leaves more money in your pocket.
What sits on top — the Medicare levy
The bracket rates above cover income tax only. On top of that, most people also pay the Medicare levy — an extra 2% of taxable income that helps fund the public health system. Low-income earners pay a reduced levy, or none at all. So a fuller picture of the tax on a $90,000 salary is $17,788 of income tax plus about $1,800 of Medicare levy — roughly $19,588 in total.
How the brackets have changed — and what's ahead
The current bracket structure took effect on 1 July 2024, when the "Stage 3" tax cuts reshaped the lower and middle brackets. One further change is already legislated: from 1 July 2026, the lowest tax rate drops from 16% to 15%, and from 1 July 2027 it drops again to 14%. The thresholds and the other rates stay the same. Our income tax calculator lets you switch between financial years, so you can compare what the same salary pays across past and future years.
The bottom line
Australia's income tax is progressive: bands of income, each with its own rate, and the first $18,200 free of tax. You are never taxed at your top rate on your whole income, and crossing into a higher bracket never reduces your take-home pay — it only changes the rate on the income above the threshold. The quickest way to see exactly what you'll pay is to run your own salary through the calculator.