How do Australian income tax brackets work?

A marginal income tax rate is the rate that applies to the next dollar of a person's taxable income. Australia's resident tax scale for 2026–27 has five brackets: taxable income up to $18,200 is not taxed, and the parts above that are taxed at 15%, 30%, 37% and 45% as income moves above $18,200, $45,000, $135,000 and $190,000¹. A person with taxable income of $80,000 has a marginal rate of 30%, because their next dollar falls in the $45,001 to $135,000 bracket.

The scale applies to taxable income, which is assessable income less allowable deductions². The ATO's published rates apply to people who were Australian residents for tax purposes for the full income year and entitled to the full tax-free threshold. Foreign residents and working holiday makers are subject to different tax scales¹. The marginal rate shows the tax rate that applies at the top of a person's taxable income, such as to additional income or a deduction claimed. It is not the share of total income paid in tax. That share, the effective rate, is lower at every income above $18,200.

Under the resident scale, entering a higher bracket cannot reduce take-home pay, because the higher rate applies only to the part of taxable income above the bracket boundary. The tax already charged on income below the boundary does not change when income crosses it.

An illustrative calculation on the 2026–27 resident scale shows how this works. Income tax on $45,000 of taxable income is $4,020, which is 15% of the $26,800 between $18,201 and $45,000. Income tax on $46,000 is $4,320. The extra $1,000 falls into the 30% bracket, so $300 of income tax applies to that amount, leaving $700 after income tax¹. A pay rise that crosses a bracket boundary changes the rate on the new dollars only. On the resident scale itself, earning an extra dollar never creates more than a dollar of additional income tax.

The tax-free threshold means an Australian resident for tax purposes generally pays no income tax on the first $18,200 of taxable income in an income year. The ATO states the threshold is equivalent to earning $350 a week, $700 a fortnight or $1,517 a month⁴.

The threshold is the tax-free bracket at the bottom of the resident tax scale. The first $18,200 of a resident taxpayer's taxable income falls within this bracket, regardless of their total income. It appears as the base of every column in the chart above.

The tax-free threshold is generally claimed through the tax file number declaration given to a payer. A person who claims the threshold with a payer has less tax withheld from each pay; income above $18,200 has tax withheld as usual⁴. The threshold has been $18,200 since the 2012–13 income year, when it replaced the previous $6,000 threshold¹.

The Medicare levy is generally 2% of taxable income, paid in addition to the income tax worked out on the scale. It is not included in the resident income tax rate tables². In the ATO's example, a taxpayer with $76,000 of assessable income and $1,000 of allowable deductions has $75,000 of taxable income and pays a levy of $1,500, which is 2% of $75,000. The levy is calculated when the return is assessed, and the amounts a payer withholds through the year generally include an amount to cover it.

Low-income thresholds can reduce or remove the levy. For 2025–26, the most recent year with published thresholds, a single person with taxable income of $28,011 or less pays no levy, and a reduced levy applies up to taxable income of $35,013. Higher thresholds of $44,268 and $55,335 apply to single people entitled to the seniors and pensioners tax offset⁵. In the ATO's example, a single taxpayer with taxable income of $29,000 and no dependants pays a reduced levy of $98.90 rather than the full $580 that 2% would produce. Separate family thresholds apply based on combined family taxable income, and some people, including certain foreign residents and defence force members, can claim a levy exemption.