Australian Tax Rates 2025–26: Income Tax Brackets Explained

Australian Tax Rates 2025–26: Income Tax Brackets Explained

Understanding how Australian income tax works can make your tax return much easier to follow.

Australia uses a progressive tax system, which means different portions of your taxable income are taxed at different rates.

For the 2025–26 financial year, Australian residents for tax purposes generally have a tax-free threshold of $18,200. Income above this amount is taxed progressively, with marginal tax rates increasing as taxable income rises.

One important point is that moving into a higher tax bracket does not mean your entire income is taxed at the higher rate.

At AU Finance Tools, we create free calculators and educational resources to help Australians understand tax, salary and personal finance.

You can also use our Tax Return Calculator to estimate your tax refund or tax payable.

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Australian Income Tax Rates for 2025–26

For Australian residents for tax purposes, the individual income tax rates for 2025–26 are:

These are the marginal tax rates for Australian residents.

They do not include the Medicare Levy or other amounts that may affect your final tax position.

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What Is the Tax-Free Threshold?

The tax-free threshold is the amount of taxable income you can generally earn before paying ordinary income tax.

For most Australian residents, the tax-free threshold is:

$18,200

For example, if your taxable income is $18,000, your ordinary income tax liability would generally be $0.

The tax-free threshold applies to Australian residents for tax purposes. Different rules can apply to foreign residents and some other taxpayers.

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How Do Australian Tax Brackets Work?

Australian tax brackets are marginal, which means each tax rate only applies to the portion of income within that particular bracket.

For example, suppose your taxable income is $60,000.

You do not pay 30% tax on the entire $60,000.

Instead:

• The first $18,200 is taxed at 0%.
• The next $26,800 is taxed at 16%.
• The remaining $15,000 is taxed at 30%.

The calculation is:

$26,800 × 16% = $4,288

$15,000 × 30% = $4,500

Estimated income tax:

$4,288 + $4,500 = $8,788

This is before considering the Medicare Levy, tax offsets, deductions or other adjustments.

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Why Don't You Pay 30% on Your Entire Income?

This is one of the most common misunderstandings about Australian tax brackets.

Suppose your taxable income increases from $44,000 to $46,000.

You do not suddenly pay 30% tax on the entire $46,000.

Only the portion above $45,000 enters the 30% tax bracket.

This means earning more income does not cause your entire income to be taxed at the new marginal rate.

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Australian Tax Rates Example: $50,000 Income

Suppose your taxable income for 2025–26 is $50,000.

The first $18,200 is tax-free.

The next $26,800 is taxed at 16%:

$26,800 × 16% = $4,288

The remaining $5,000 is taxed at 30%:

$5,000 × 30% = $1,500

Estimated income tax:

$4,288 + $1,500 = $5,788

This is before the Medicare Levy, tax offsets and other adjustments.

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Australian Tax Rates Example: $80,000 Income

Now suppose your taxable income is $80,000.

The first two tax brackets give:

$26,800 × 16% = $4,288

The remaining income above $45,000 is:

$80,000 − $45,000 = $35,000

That amount is taxed at 30%:

$35,000 × 30% = $10,500

Estimated income tax:

$4,288 + $10,500 = $14,788

This is your estimated ordinary income tax before considering the Medicare Levy and other adjustments.

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Australian Tax Rates Example: $120,000 Income

Suppose your taxable income is $120,000.

The first $45,000 is calculated as:

$26,800 × 16% = $4,288

The remaining $75,000 is taxed at 30%:

$75,000 × 30% = $22,500

Estimated income tax:

$4,288 + $22,500 = $26,788

Your marginal tax rate is 30%, but your overall tax rate is lower because different portions of your income are taxed at different rates.

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What Is a Marginal Tax Rate?

Your marginal tax rate is the tax rate that applies to your next dollar of taxable income.

For example, if your taxable income is $100,000, your marginal tax rate is 30% under the 2025–26 resident tax rates.

This does not mean you pay 30% on all $100,000.

The lower portions of your income are taxed at lower rates.

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What Is Your Effective Tax Rate?

Your effective tax rate is the proportion of your total taxable income that you actually pay in income tax.

For example, if you have:

Taxable income: $100,000

Income tax: $20,788

Your effective income tax rate would be:

$20,788 ÷ $100,000 = 20.79%

This is lower than your 30% marginal tax rate.

The difference exists because your income is taxed progressively.

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Australian Tax Rates and the Medicare Levy

The Medicare Levy is separate from ordinary income tax.

For most Australian residents who are subject to the full levy, the standard Medicare Levy is generally:

2% of taxable income

For example, if your taxable income is $80,000:

$80,000 × 2% = $1,600

The Medicare Levy could therefore add approximately $1,600 to your overall tax liability if the full levy applies.

However, lower-income taxpayers may qualify for a reduction or exemption.

Read our detailed guide:

Medicare Levy 2% in Australia 2025–26: Who Pays It and How It’s Calculated

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Income Tax vs Medicare Levy

It is useful to keep ordinary income tax and the Medicare Levy separate.

Income tax is calculated using the progressive tax brackets.

Medicare Levy is generally calculated separately at 2% of taxable income for people who are subject to the full levy.

For example, a taxpayer with $80,000 of taxable income could have:

Income tax: $14,788

Medicare Levy: $1,600

Combined:

$16,388

This is a simplified example and does not include tax offsets, deductions or other adjustments.

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Is Tax Calculated on Salary or Taxable Income?

Your salary is not necessarily the same as your taxable income.

Income tax is generally calculated using your taxable income.

Taxable income is generally:

Assessable income − allowable deductions = taxable income

For example:

In this example, the tax calculation would generally be based on $85,000 rather than the original $90,000 salary.

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What Is the Difference Between Gross Income and Taxable Income?

These terms are sometimes confused.

Gross income

Gross income is generally the income you receive before allowable deductions.

Taxable income

Taxable income is generally your assessable income after subtracting allowable deductions.

For example:

Gross income: $100,000

Allowable deductions: $5,000

Taxable income: $95,000

Your final tax calculation generally uses the taxable income amount.

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Do Tax Deductions Reduce Your Tax?

Tax deductions can reduce your taxable income if they are allowable under Australian tax rules.

For example:

Income: $90,000

Allowable deductions: $5,000

Taxable income: $85,000

Because your taxable income is lower, your income tax may also be lower.

However, a $1,000 tax deduction does not normally mean you receive a $1,000 refund.

The actual tax benefit depends on your circumstances and marginal tax rate.

Read our guide:

Tax Deductions in Australia: What Can You Claim on Your Tax Return?

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What Happens When You Move Into a Higher Tax Bracket?

Moving into a higher tax bracket does not mean you take home less money.

Only the portion of your income that enters the higher bracket is taxed at the higher rate.

For example, if your taxable income increases from $45,000 to $46,000, only the additional $1,000 is taxed at the 30% marginal rate.

The rest of your income continues to be taxed according to the lower brackets.

This is why a higher salary generally still results in higher after-tax income.

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Australian Tax Rates for Common Income Levels

The following table shows simplified income tax calculations using the 2025–26 resident tax rates.

*These figures are simplified income tax calculations before Medicare Levy, tax offsets, deductions and other adjustments.

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What About Foreign Residents?

Foreign residents for Australian tax purposes generally have different income tax rules.

For example, foreign residents generally do not receive the same $18,200 tax-free threshold available to Australian residents.

Their tax rates and Medicare Levy position can therefore be different.

Tax residency is not determined solely by citizenship.

If you are unsure about your tax residency status, read:

Australian Tax Resident vs Non-Resident: What's the Difference?

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What About Working Holiday Makers?

Working Holiday Makers can be subject to different tax rates.

If you hold a relevant Working Holiday Maker visa, special tax rules may apply to your Australian income.

This means you should not automatically use the standard resident tax brackets simply because you are working in Australia.

Your visa and tax circumstances can affect how your income is taxed.

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How Do Tax Rates Affect Your Tax Refund?

Your tax refund depends on more than your income tax bracket.

Your final tax position can be affected by:

• Your taxable income
• Tax withheld by your employer
• Tax deductions
• Tax offsets
• Medicare Levy
• HECS-HELP or other study loan repayments
• Tax residency
• Private health insurance
• Other applicable circumstances

Throughout the year, your employer generally withholds tax from your pay.

When you lodge your tax return, the Australian Taxation Office calculates your actual tax liability.

If you have paid more tax than required, you may receive a refund.

If you have paid less than required, you may have an amount to pay.

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Frequently Asked Questions

What are the Australian tax rates for 2025–26?

For Australian residents, the 2025–26 income tax rates are 0% up to $18,200, 16% from $18,201 to $45,000, 30% from $45,001 to $135,000, 37% from $135,001 to $190,000, and 45% above $190,000.

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What is the tax-free threshold in Australia for 2025–26?

For most Australian residents for tax purposes, the tax-free threshold is $18,200.

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What is the 30% tax bracket in Australia for 2025–26?

The 30% marginal tax rate applies to taxable income between $45,001 and $135,000 for Australian residents.

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Does earning more put all my income into a higher tax bracket?

No.

Australia uses marginal tax rates. Only the portion of your taxable income that falls within the higher bracket is taxed at that higher rate.

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What is the highest tax rate in Australia for 2025–26?

The highest individual marginal tax rate is 45%, which applies to taxable income above $190,000 for Australian residents.

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Is the Medicare Levy included in the income tax rates?

No.

The Medicare Levy is generally a separate charge from ordinary income tax.

For people subject to the full levy, it is generally calculated at 2% of taxable income.

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Is tax calculated on my salary or taxable income?

Income tax is generally calculated using your taxable income, which is generally your assessable income minus allowable deductions.

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Why is my effective tax rate lower than my marginal tax rate?

Your marginal tax rate only applies to the highest portion of your taxable income.

Because lower portions of your income are taxed at lower rates, your overall effective tax rate is generally lower.

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Do tax rates change every year?

Tax rates and thresholds can change between financial years.

For this reason, make sure you use the tax rates that apply to the financial year in which you earned the income.

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Calculate Your Australian Income Tax

Understanding the tax brackets is useful, but your actual tax position can involve several other factors.

Your result may depend on:

• Taxable income
• Tax withheld
• Tax deductions
• Tax offsets
• Medicare Levy
• HECS-HELP
• Tax residency
• Private health insurance
• Other applicable circumstances

Use our Tax Return Calculator to estimate your tax refund or tax payable.

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Key Takeaways

• Australia uses a progressive income tax system.
• The 2025–26 tax-free threshold for most Australian residents is $18,200.
• The 16% tax rate applies from $18,201 to $45,000.
• The 30% tax rate applies from $45,001 to $135,000.
• The 37% tax rate applies from $135,001 to $190,000.
• Income above $190,000 is generally taxed at 45%.
• Moving into a higher tax bracket does not mean your entire income is taxed at the higher rate.
• Tax is generally calculated using taxable income, rather than simply your gross salary.
• The Medicare Levy is generally separate from ordinary income tax.
• Tax deductions can reduce taxable income.
• Your final tax refund or tax payable depends on more than your tax bracket.

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Information Sources

This guide is based primarily on publicly available Australian Government and Australian Taxation Office information about individual income tax rates and thresholds.

Tax rates and thresholds can change between financial years. Always check the latest information from the Australian Taxation Office when preparing your tax return.

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Disclaimer

This article provides general information only and should not be considered financial, tax, legal or professional advice.

Tax outcomes depend on your individual circumstances. The examples in this article are simplified illustrations and may not reflect your actual tax liability.

Always refer to the Australian Taxation Office (ATO) or a qualified tax professional for advice about your specific circumstances.