Australia uses marginal tax brackets, which means each rate applies only to the slice of income that falls inside its band, not to everything you earn. So if your pay nudges you into a higher bracket, only the dollars above that threshold are taxed at the higher rate, and the rest keeps its lower rates.
That one idea clears up most of the confusion people have about income tax. It also kills the myth that a pay rise can leave you worse off, which it almost never does. Below are the current resident brackets, how the Medicare levy stacks on top, and a worked example so you can see exactly how your own number comes together.
The resident tax brackets for 2026
After the stage-three changes, the resident income tax brackets look roughly like the table below. These are figures as we understand them, last checked June 2026, and brackets shift with government policy, so confirm the current numbers with the ATO before you rely on them for anything that matters.
| Taxable income | Tax on this income |
|---|---|
| 0 to $18,200 | Nil |
| $18,201 to $45,000 | 16c for each $1 over $18,200 |
| $45,001 to $135,000 | $4,288 plus 30c for each $1 over $45,000 |
| $135,001 to $190,000 | $31,288 plus 37c for each $1 over $135,000 |
| $190,001 and over | $51,638 plus 45c for each $1 over $190,000 |
These rates are for Australian tax residents and do not include the Medicare levy, which we come to shortly. The first $18,200 is the tax-free threshold, and if you want the detail on who can claim it and when, our tax-free threshold explained guide walks through it.
What “marginal” actually means
Here is the part worth tattooing on the inside of your eyelids. Your tax bracket is not the rate you pay on your whole income. It is the rate you pay on the top slice of it.
Picture your income as water filling a set of buckets stacked from the bottom up. The first bucket, everything up to $18,200, is taxed at nil. The next bucket fills at 16c in the dollar, the one above that at 30c, and so on. When your income spills into a new bucket, only the water in that bucket gets the higher rate. The buckets below keep the rates they always had.
This is why the rate that matters most for decisions is your marginal rate, the rate on your next dollar earned. It tells you what an extra shift, a bonus or a side hustle is really worth after tax, and it is the number that drives sensible choices about salary sacrifice and deductions.
A pay rise into a higher bracket still leaves you with more money in hand. The higher rate only ever touches the dollars above the threshold.
A worked example, because numbers help
Say you earn $80,000 in taxable income. People often assume that lands them “in the 30% bracket” and so they pay 30% of $80,000. They do not. The tax builds up bracket by bracket:
- The first $18,200 is taxed at nil, so $0.
- The next $26,800 (from $18,201 to $45,000) is taxed at 16c, so about $4,288.
- The remaining $35,000 (from $45,001 to $80,000) is taxed at 30c, so about $10,500.
- Add those together and the income tax is roughly $14,788, before the Medicare levy.
That works out to an average rate of about 18.5% across the whole $80,000, even though the top slice is taxed at 30%. The marginal rate is 30%, the average rate is far lower, and the gap between those two is exactly what the marginal system creates. If you would rather not do this by hand every time, an income tax calculator will run the brackets for you in seconds.
Do not forget the Medicare levy
On top of the income tax above, most taxpayers pay a Medicare levy of 2% of taxable income. So in the $80,000 example, that is another $1,600 or so, lifting the total closer to $16,388. Lower earners may pay a reduced levy or none at all, and some higher earners without adequate private hospital cover can also face the Medicare levy surcharge, which is a separate charge again.
The point is that the headline brackets are not the whole bill. When you are working out what you actually keep, the 2% levy belongs in the sum, and the surcharge may too depending on your income and your health cover. These thresholds change, so check your own situation against the official figures rather than assuming last year’s numbers still hold.
How the brackets feed the rest of your money
Knowing your marginal rate is not trivia. It is the lever behind a lot of everyday financial decisions. A deduction is worth your marginal rate, so a $1,000 deductible expense saves a 30c-rate taxpayer about $300, not the full $1,000. Salary sacrifice into super is attractive partly because contributions are generally taxed at 15% rather than your marginal rate. And the value of moving income between a higher earner and a lower earner in a household comes straight from the difference in their marginal rates.
All of that is easier to plan for once you can see the brackets clearly, which is also why it pays to work your tax into your budget rather than treating the annual tax return as a surprise that arrives each July. When you do lodge, our tax return guide covers what to gather and what trips people up.
This article is general information only and not personal financial, tax or legal advice. Everyone’s circumstances differ, the figures here are current as we understand them and last checked June 2026, and rates, thresholds and rules change, so confirm anything you act on with the ATO or a registered tax agent.
The bottom line
Australian tax brackets are marginal, so the rate attached to your bracket only ever applies to the income inside that band. Your average rate is lower than your top bracket, a pay rise will not tax all your income at the higher rate, and the Medicare levy sits on top of the lot. Learn your marginal rate, treat the published thresholds as a snapshot rather than gospel, and check the current numbers with the ATO before you make a call that turns on them.