🇦🇺 Australian explainer
How Australian Income Tax Works
Tax brackets, the Medicare levy, offsets, and why your marginal rate is not what you actually pay. 2025–26 rates.
🧾 Explainer·8 min read·Updated 17 March 2026
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Explore salary benchmarks, tax guides, comparisons, and salary examples2025–26 tax brackets
| Taxable income | Tax rate |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 19¢ per $1 over $18,200 |
| $45,001 – $135,000 | $5,092 + 32.5¢ per $1 over $45,000 |
| $135,001 – $190,000 | $31,342 + 37¢ per $1 over $135,000 |
| Over $190,000 | $51,692 + 45¢ per $1 over $190,000 |
Plus 2% Medicare levy on taxable income above $26,000 (approx). Residents only — non-residents pay different rates with no tax-free threshold.
Effective rates for common salaries
| Salary | Income tax | Medicare | Take-home | Effective rate |
|---|---|---|---|---|
| $60,000 | $9,967 | $1,200 | $48,833 | 18.6% |
| $80,000 | $16,467 | $1,600 | $61,933 | 22.6% |
| $100,000 | $22,967 | $2,000 | $75,033 | 25.0% |
| $120,000 | $29,467 | $2,400 | $88,133 | 26.6% |
| $150,000 | $40,567 | $3,000 | $106,433 | 29.0% |
| $200,000 | $60,667 | $4,000 | $135,333 | 32.3% |
Includes LITO where applicable. Excludes HECS repayments and Medicare Levy Surcharge. Calculate your exact figure →
The Medicare levy and surcharge
All Australian residents pay a 2% Medicare levy on top of income tax (with a low-income exemption). This funds Medicare — the public health system.
Higher earners without private hospital cover pay an additional Medicare Levy Surcharge of 1–1.5%. Many people find the cheapest private hospital cover cheaper than the MLS once their income exceeds $93,000 (singles) or $186,000 (families).
Frequently asked questions
What's the difference between marginal tax rate and effective tax rate?
Your marginal rate is the rate you pay on your last dollar of income — the highest bracket you sit in. Your effective rate is your total tax divided by your total income. Because lower income is taxed at lower rates (or not at all), your effective rate is always lower than your marginal rate. For example, earning $90,000, your marginal rate is 32.5% but your effective rate (including Medicare) is around 22%.
What is the Low Income Tax Offset (LITO)?
LITO is a tax reduction available to residents earning under $66,667. The maximum offset is $700 (for incomes up to $37,500), reducing to nil at $66,667. It effectively means people earning under ~$18,200 pay no income tax, and those earning $18,200–$37,500 pay less than the headline 19% rate suggests. LITO is applied automatically — you don't need to claim it separately.
Do I need to lodge a tax return?
Generally yes if you're an Australian resident who earned taxable income above $18,200, had tax withheld from any payments, or had business income. Even if you earned below $18,200, lodging a tax return may get you back any tax withheld. The due date is 31 October each year if lodging yourself, or later if using a registered tax agent.
What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge (MLS) is an additional 1–1.5% on top of the standard 2% Medicare levy, charged to higher earners who don't have private hospital cover. It applies from $93,000 (singles) or $186,000 (families) in 2025–26. Many people find private health insurance cheaper than paying the MLS once their income reaches this threshold.
What can I claim as a tax deduction?
Common deductions include: work-related expenses (uniforms, tools, home office, professional development, union fees), investment property expenses (interest, depreciation, repairs, management fees), donations to registered charities, personal super contributions (if lodging a Notice of Intent), accountant fees, and some self-education costs. You need receipts for claims over $300, and $300 or under still must be substantiated.
Sources
- Australian Taxation Office – Individual income tax ratesAustralian Taxation Office · Resident individual income tax rates and thresholds.
- Australian Taxation Office – What is the Medicare levy?Australian Taxation Office · Overview of the standard Medicare levy and how it applies.
- Australian Taxation Office – Low income tax offsetAustralian Taxation Office · Low income tax offset rules and thresholds.
How this page works
This guide summarises the core mechanics of Australian income tax in plain English using public ATO guidance and standard resident-taxpayer assumptions.
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Methodology
- Set out the resident individual tax brackets and thresholds.
- Explain how marginal rates differ from effective tax rates.
- Summarise Medicare levy and common offsets such as LITO.
- Use worked salary examples to show how the rules affect take-home pay.
Assumptions
- Examples assume an Australian resident taxpayer.
- Examples are simplified and do not capture every offset, deduction, or surcharge.
- HELP debt, salary sacrifice, and private health insurance can change actual outcomes.
Limitations
- This page is an explainer, not personal tax advice.
- Actual tax outcomes depend on your full circumstances and return data.
Life Calculators provides independent modelling tools based on publicly available data and standard formulas. Results are estimates only and are not financial advice.
Last updated: 17 March 2026
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