Step one: the income tax brackets
Australia uses a progressive system: each bracket only taxes the slice of income that falls inside it, not your whole income at the top rate.
| Financial year | Taxable income | Tax on this income |
|---|---|---|
| 2026–27 | $0 – $18,200 | Nil |
| 2026–27 | $18,201 – $45,000 | 15% over $18,200 |
| 2026–27 | $45,001 – $135,000 | $4,020 + 30% over $45,000 |
| 2026–27 | $135,001 – $190,000 | $31,020 + 37% over $135,000 |
| 2026–27 | $190,001+ | $51,370 + 45% over $190,000 |
The main change from the year before: the 2025–26 second bracket was taxed at 16% (not 15%) over $18,200, with matching higher base amounts in every bracket above it ($4,288 / $31,288 / $51,638 respectively). The brackets themselves ($18,200, $45,000, $135,000, $190,000) are unchanged between the two years.
Step two: the Medicare levy
Most residents pay an additional 2% of taxable income as the Medicare levy, on top of income tax — it's calculated separately, not folded into the bracket rates above.
Low-income earners get a reduction or full exemption. For a single person with no dependents, the legislated thresholds are a full exemption up to $28,011 and a phased reduction (shade-in) up to $35,013, above which the full 2% applies. Different thresholds apply for families, seniors and pensioners eligible for the seniors and pensioners tax offset (SAPTO).
Step three: the Low Income Tax Offset (LITO)
LITO is a tax offset, not a bracket — it directly reduces the tax you owe rather than the income you're taxed on. It phases out in two stages:
| Taxable income | LITO amount |
|---|---|
| Up to $37,500 | $700 (maximum) |
| $37,501 – $45,000 | $700 − 5c per $1 over $37,500 |
| $45,001 – $66,667 | $325 − 1.5c per $1 over $45,000 |
| Above $66,667 | Nil |
Worked example: $85,000 salary
Say you're a single Australian resident with no dependents, earning $85,000 in the 2026–27 financial year.
- Income tax: $4,020 + 30% × ($85,000 − $45,000) = $4,020 + $12,000 = $16,020
- LITO: income is above $66,667, so the offset is $0
- Medicare levy: well above the $35,013 threshold, so the full 2% applies: $85,000 × 2% = $1,700
- Total tax + levy: $16,020 + $1,700 = $17,720
- Take-home pay: $85,000 − $17,720 = $67,280
That's an effective tax rate (including the Medicare levy) of about 20.8%, well below the 30% marginal rate that applies to the last dollar earned — because only the income inside each bracket is taxed at that bracket's rate.
Want your own numbers instead of this example? Plug your salary into the income tax calculator below and it works out the bracket tax, Medicare levy, LITO and net pay automatically.
Questions people actually ask
What are the Australian income tax brackets for 2026–27?+
Nil up to $18,200; 15% between $18,201–$45,000; $4,020 + 30% between $45,001–$135,000; $31,020 + 37% between $135,001–$190,000; $51,370 + 45% above $190,000.
How much is the Medicare levy?+
2% of taxable income for most people, with a reduction or exemption below the low-income thresholds (around $28,011–$35,013 for a single person with no dependents).
What is the Low Income Tax Offset (LITO)?+
An offset of up to $700 for incomes up to $37,500, phasing out in two stages until it reaches zero at $66,667.
What's the difference between marginal and effective tax rate?+
Marginal is the rate on your last dollar earned. Effective is your total tax divided by total income, and it's always lower because earlier brackets are taxed at lower rates.
General information only, based on ATO guidance current as of September 2026 — not personal tax advice. Brackets, offsets and levy thresholds are indexed and can change; confirm current-year figures at ato.gov.au and speak with a registered tax agent about your specific situation.