Australian Tax Brackets 2025-26 — Income Tax Rates & Thresholds

What Are the Australian Tax Brackets for FY2025-26?

Australia has 5 income tax brackets for FY2025-26, with a tax-free threshold of $18,200 and a top marginal rate of 45% on income above $190,000.

These rates apply to Australian residents for tax purposes. They do not include the 2% Medicare levy, which is calculated separately on your taxable income. The Australian Taxation Office publishes these income tax brackets each financial year, and the FY2025-26 rates remain unchanged from FY2024-25 following the Stage 3 tax cuts.

The tax-free threshold remains at $18,200. With the Low Income Tax Offset, the effective tax-free threshold increases to $22,575.

Calculate your exact tax →

How Does Marginal Tax Work?

Marginal tax means each dollar of income is taxed only at the rate for the bracket it falls in, not the highest bracket rate on your entire salary.

The most common misunderstanding about Australian taxation is that earning more "pushes all your income" into a higher bracket. This is false. Australia's progressive system splits your assessable income into slices, and each slice is taxed independently. Only the dollars within each bracket are taxed at that bracket's rate.

Step-by-Step: How Progressive Tax Is Calculated

The ATO calculates your income tax liability using these steps:

1. $0 to $18,200 — taxed at 0%. This is the tax-free threshold. Every resident pays $0 on this portion.
2. $18,201 to $45,000 — taxed at 16 cents per dollar. The maximum tax in this bracket is $4,288 (on $26,800 of income).
3. $45,001 to $135,000 — taxed at 30 cents per dollar. The maximum tax in this bracket is $27,000 (on $90,000 of income).
4. $135,001 to $190,000 — taxed at 37 cents per dollar. The maximum tax in this bracket is $20,350 (on $55,000 of income).
5. $190,001 and above — taxed at 45 cents per dollar. There is no upper limit on this bracket.

Your total tax equals the sum of tax from each bracket. This total divided by your gross income gives your effective tax rate, which is always lower than your marginal rate. Use our Take-Home Pay Calculator to see the bracket-by-bracket breakdown for your salary.

How Much Tax Do You Pay on $90,000? — Worked Example

On a salary of $90,000 in FY2025-26, total income tax is $17,788 before the Medicare levy, giving an effective tax rate of 19.8%.

Your marginal tax rate at $90,000 is 30% (the third bracket). Your effective tax rate is only 19.8%. Add the 2% Medicare levy ($1,800) and your total deductions rise to $19,588, leaving take-home pay of approximately $70,412 per year.

Your employer also pays $10,800 in superannuation (12% SG rate) on top of your salary. This does not reduce your take-home pay. Use the Superannuation Calculator to see how super contributions grow over time.

How Did the Stage 3 Tax Cuts Change the Brackets?

The Stage 3 tax cuts reduced the 19% bracket to 16%, the 32.5% bracket to 30%, and expanded the third bracket ceiling from $120,000 to $135,000, effective 1 July 2024.

The revised Stage 3 cuts were announced in January 2024 and passed into law in March 2024. The original plan would have removed the 37% bracket entirely, but the revised version spread the tax relief more evenly across all income levels. Every taxpayer earning above $18,200 received a tax cut.

Dollar Savings by Salary Level

The annual tax reduction under Stage 3 varies by income. Low and middle-income earners received proportionally larger percentage savings:

Savings are income tax only, before LITO variations between years. Use our Pay Rise Calculator to model how a salary increase interacts with these new brackets.

How Have Tax Brackets Changed Over Three Years?

The tax bracket rates decreased in FY2024-25 with the Stage 3 cuts and remain identical in FY2025-26, with no further changes until the 16% rate drops to 15% in FY2026-27.

The FY2025-26 brackets are identical to FY2024-25. The next legislated change takes effect on 1 July 2026, when the second bracket rate drops from 16% to 15%. A further reduction to 14% is scheduled for 1 July 2027. These changes save $268 per year for every taxpayer earning above $45,000.

What Is the Difference Between Effective Tax Rate and Marginal Rate?

Your effective tax rate is the average rate paid across all income (total tax divided by total income), while your marginal rate is the rate on the last dollar earned — these two figures diverge significantly at every income level.

Understanding the gap between these rates is critical for financial decisions. A worker earning $80,000 has a marginal rate of 30%, but their effective rate is only 18.5%. This means a pay rise is never "eaten by tax" — only the additional dollars are taxed at the marginal rate.

Effective vs Marginal Rate at Common Salaries

These are income tax only. Actual take-home is also reduced by Medicare levy (2%) and HECS-HELP repayments.

See your exact take-home pay with all deductions →

How Do Non-Resident Tax Brackets Compare to Resident Rates?

Non-residents pay 30% from the first dollar with no tax-free threshold, making their tax significantly higher at low-to-mid incomes and slightly lower at very high incomes due to no Medicare levy.

Residency for tax purposes is determined by domicile, length of stay, and ties to Australia — it is not the same as visa status. The ATO applies 4 tests: the resides test, domicile test, 183-day test, and Commonwealth superannuation test. Non-residents do not receive the $18,200 tax-free threshold, the Low Income Tax Offset, or SAPTO. They also do not pay the 2% Medicare levy.

Resident vs Non-Resident Bracket Comparison

Tax Comparison at Key Salary Levels

Residents paying the 2% Medicare levy narrows the gap at higher incomes. For a detailed non-resident calculation, see our Non-Resident Tax Guide.

Working Holiday Maker Rates

Working holiday makers (subclass 417 and 462 visas) pay a flat 15% on the first $45,000, then standard non-resident rates on income above $45,000. Employers must register with the ATO as a working holiday maker employer to apply this rate correctly through PAYG withholding.

How Do Tax Offsets Interact with Tax Brackets?

Tax offsets reduce your tax payable (not your taxable income), with the LITO providing up to $700 and SAPTO up to $2,230 for eligible taxpayers.

Offsets are applied after the ATO calculates your gross tax liability from the bracket table. They are "non-refundable" — they reduce tax to zero but do not generate a refund by themselves. This distinction matters: a tax deduction reduces assessable income (and shifts which bracket your top dollars fall in), while a tax offset directly reduces the final tax bill.

Low Income Tax Offset (LITO)

The LITO provides a tax reduction of up to $700 for lower-income earners:

Combined with the tax-free threshold, the LITO means you can earn up to $22,575 before paying any net income tax. Full LITO guide →

Seniors and Pensioners Tax Offset (SAPTO)

Eligible seniors of Age Pension age receive an additional offset of up to $2,230 (singles) or $1,602 (each member of a couple). SAPTO combined with LITO raises the effective tax-free threshold to $33,082 for single seniors. To qualify, the taxpayer must meet the age requirement and satisfy the income test. SAPTO phases out at 12.5 cents per dollar over the shade-out threshold.

Medicare Levy and Medicare Levy Surcharge

The Medicare levy of 2% applies on top of income tax and is not reduced by LITO or SAPTO. Taxpayers earning above $93,000 (singles) without private hospital cover also pay the "Medicare Levy Surcharge" at rates of 1%, 1.25%, or 1.5% depending on income tier. This surcharge is separate from the standard 2% levy.

What Changed in FY2025-26?

The income tax brackets for FY2025-26 are unchanged from FY2024-25 — the same rates, thresholds, and LITO structure apply for the second consecutive year under the Stage 3 framework.

While the tax brackets themselves did not change, several related settings were updated for FY2025-26:

• The superannuation guarantee rate increased from 11.5% to 12%, raising employer super contributions but not affecting take-home pay directly
• The HECS-HELP repayment system switched from percentage-of-income tiers to a marginal model, with a new threshold of $67,000
• The maximum super contribution base changed to $62,500 per quarter, capping employer SG obligations for very high earners
• The concessional contributions cap remains at $30,000 per year

The next bracket change is legislated for 1 July 2026, when the second bracket rate drops from 16% to 15%. A further reduction to 14% takes effect on 1 July 2027. Both changes save $268 per year for anyone earning above $45,000. Use the Income Tax Calculator to model your tax under the current brackets.

Related Resources

These Australian tax calculators and guides provide detailed breakdowns for specific tax topics covered on this page.

• Income Tax Calculator — enter your salary and see a bracket-by-bracket tax breakdown with LITO, Medicare levy, and HECS applied automatically
• Take-Home Pay Calculator — calculate your after-tax income including superannuation, salary sacrifice, and overtime
• Medicare Levy Guide — understand the 2% levy, low-income exemptions, and surcharge tiers for taxpayers without private health insurance
• HECS-HELP Calculator — model your student loan repayments under the new FY2025-26 marginal repayment system
• Low Income Tax Offset (LITO) Guide — see how LITO reduces your tax and raises the effective tax-free threshold to $22,575
• Non-Resident Tax Guide — compare resident and non-resident brackets and understand working holiday maker taxation

Frequently Asked Questions