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 March 2026
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2025–26 tax brackets
|
| $0 – $18,200 |
| $18,201 – $45,000 |
| $45,001 – $135,000 |
| $135,001 – $190,000 |
| 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
|
| $60,000 | $9,967 | $1,200 |
| $80,000 | $16,467 | $1,600 |
| $100,000 | $22,967 | $2,000 |
| $120,000 | $29,467 | $2,400 |
| $150,000 | $40,567 | $3,000 |
| $200,000 | $60,667 | $4,000 |
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
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%.
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.
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.
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.
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.