How Australian income tax is calculated

Tax is marginal

Australia uses marginal tax rates. Each slice of your taxable income is taxed at the rate for that slice. Moving into a higher bracket never reduces your take-home pay. Only the dollars above the threshold are taxed at the higher rate.

2026-27 resident rates

The 16 percent rate for the $18,201 to $45,000 bracket falls to 15 percent from 1 July 2026. The 2025-26 table is on our tax rates page.

Worked example: $90,000 salary, 2026-27

Step 1. Taxable income is $90,000 (assuming no deductions).

Step 2. Income tax. $90,000 falls in the $45,001 to $135,000 bracket. The first $45,000 costs $4,020. The remaining $45,000 is taxed at 30 percent, which is $13,500. Income tax is $17,520.

Step 3. Medicare levy at 2 percent of $90,000 is $1,800.

Step 4. Low income tax offset. This reduces to zero by $66,667 of taxable income, so it is $0 here.

Step 5. Total tax and Medicare is $19,320. Take-home pay is $70,680 a year, about $2,718 a fortnight (26 pay periods).

The effective rate is 21.5 percent, much lower than the 30 percent marginal rate at that income.

Worked example: $50,000 salary, 2026-27

Income tax: $50,000 is in the $45,001 to $135,000 bracket. Using the table, $4,020 plus 30 percent of the $5,000 over $45,000 is $5,520.

Medicare levy: 2 percent of $50,000 is $1,000. Low income tax offset at $50,000: $700 reduced by 5c per dollar between $37,500 and $45,000 ($375), then 1.5c per dollar from $45,000 to $50,000 ($75), leaving $250.

Total: $5,520 plus $1,000 minus $250 is $6,270. Take-home is $43,730.

The Medicare levy

The levy is 2 percent of taxable income and funds the public health system. Lower income earners pay a reduced amount or none. Higher income earners without private hospital cover can also pay the Medicare levy surcharge. Our calculator uses the standard 2 percent and no surcharge.

The low income tax offset (LITO)

LITO is a tax offset of up to $700. It applies in full up to $37,500 of taxable income, then reduces by 5c per dollar between $37,500 and $45,000, then by 1.5c per dollar between $45,000 and $66,667, where it reaches zero. It is applied automatically when you lodge a tax return.

Salary, tax and super

The figures above are for salary excluding employer super. Employer super is paid on top and is not part of your taxable income. See super guarantee explained. If you have a study loan, see HELP repayments for 2026-27.

To see your own number, use the calculator.

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