How income tax is calculated in Australia
Australia uses a progressive income tax system. You don't pay one flat rate on your whole income — instead, your income is split into bands, and each band is taxed at its own rate. Only the dollars that fall inside a higher band are taxed at that higher rate, so earning more never leaves you worse off overall.
For the 2025–26 financial year (1 July 2025 to 30 June 2026), these are the resident tax rates set by the Australian Taxation Office:
| 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 rates are unchanged from 2024–25. Selecting a different tax year in the calculator above applies that year's brackets, offsets and thresholds automatically. On top of income tax, most people also pay the Medicare levy of 2% of taxable income, which funds the public health system. Low-income earners pay a reduced levy or none at all.
The Medicare levy surcharge
If you earn above $101,000 as a single (or $202,000 as a family) and don't hold private patient hospital cover, you also pay the Medicare levy surcharge — an extra 1% to 1.5% on top of the standard levy. Holding hospital cover for the full year removes it entirely. Tick the box in the calculator to see the difference for your income.
The Low Income Tax Offset (LITO)
The Low Income Tax Offset reduces the tax bill of lower earners by up to $700. You get the full $700 if your taxable income is $37,500 or less; it then phases out and disappears once your income reaches $66,667. The calculator applies it automatically.
Calculating tax for past and future years
The year selector covers every financial year from 2018–19 to 2026–27. For 2018–19 through 2021–22 the calculator also applies the Low and Middle Income Tax Offset (LMITO) — a temporary offset of up to $1,080 (and up to $1,500 in 2021–22) that has since ended. Looking ahead, the 2026–27 year uses the legislated reduction of the lowest tax rate from 16% to 15%, which takes effect on 1 July 2026.
Marginal rate vs effective rate
Your marginal rate is the rate applied to your next dollar earned — the top band your income reaches. Your effective rate is the total tax you pay divided by your total income, which is always lower. For example, someone on $75,000 has a 30% marginal rate but an effective rate closer to 20%, because the first $45,000 of their income is taxed far more lightly.
Worked example: tax on $90,000
Here's how the calculator arrives at its numbers for a resident earning $90,000 in 2025–26, with private hospital cover:
Salary of $90,000
That's an effective tax rate of about 21.8% — even though the marginal rate on the last dollar earned is 30% plus the 2% Medicare levy.