From 1 July 2026, the tax rate on income between $18,201 and $45,000 dropped from 16% to 15% — the first of two further cuts legislated after the March 2025 Budget. Every taxpayer earning above $45,000 saves the full $268 a year, applied automatically through lower PAYG withholding.
Key facts
| What changed | Before | Now |
|---|---|---|
| Bracket affected | — | $18,201–$45,000 |
| Rate | 16% | 15% |
| Maximum annual saving | — | $268 |
| Next scheduled cut | — | 15% → 14% from 1 July 2027 |
| Legislation | — | Passed March 2025, after the 2025-26 Budget |
What actually changed
The second marginal tax rate — the rate applied to every dollar earned between $18,201 and $45,000 — fell by one percentage point, from 16% to 15%, from 1 July 2026. It's the first of two further cuts announced in the March 2025 Federal Budget, building on the revised Stage 3 cuts that took effect from 1 July 2024.
Because the change only affects that middle bracket, the dollar saving is capped: once your income exceeds $45,000, you've captured the full $26,800 of income taxed at the lower rate, and the saving stops growing.
How much you actually save
Someone earning $45,000 or more saves the maximum $268 a year — about $5.15 a week. Someone earning $30,000 has only $11,800 of their income in the affected bracket, so their saving is proportionally smaller, at roughly $118 a year. Anyone earning under $18,201 sees no change, since that income already sits below the tax-free threshold.
The saving scales linearly between $18,201 and $45,000: every extra dollar of taxable income in that band now costs one cent less in tax than it did in 2025-26. On a $60,000 salary, the full $268 saving applies because all of the affected bracket is captured. On a $22,000 part-time wage, only $3,800 of income sits in the bracket, so the saving is closer to $38 a year — small, but automatic and stacked on top of any award or minimum wage increase you also received on 1 July.
Where the tax cuts go next
This isn't the end of the schedule. The same legislation cuts the rate again, from 15% to 14%, from 1 July 2027 — on the same $18,201 to $45,000 bracket — taking the maximum annual saving to $536 a year compared with 2024-25 settings. The May 2026 Budget layered a further $250 Working Australians Tax Offset on top from 2027-28 (work out the combined effect with the Working Australians Tax Offset calculator); see our Budget 2026-27 wrap for the combined picture.
Combined with the $1,000 instant work-related deduction that also applies from the 2026-27 income year, Treasury estimates a worker on average earnings receiving the average $205 deduction benefit would be about $2,701 better off in 2027-28 compared with 2023-24 settings — or up to $2,816 with the maximum deduction benefit. See our $1,000 instant deduction explainer for how that measure works alongside this rate cut.
What this means for your pay
You don't need to apply for the tax cut — it's built into the PAYG withholding schedule your payroll software already uses, so it should simply appear as slightly higher take-home pay from your first pay run after 1 July 2026. Check the exact effect on your salary with our income tax calculator, or see how it stacks with a pay rise using the pay rise calculator.