How Australian income tax works, with worked examples
You never pay one rate on all your income. Each slice is taxed at its own rate.
Australian residents pay tax on taxable income in slices, called tax brackets. Only the part of your income inside a bracket is taxed at that bracket's rate, so crossing into a higher bracket only affects the dollars above the line. The Medicare levy adds 2% on top for most people.
The 2026-27 tax rates for residents
| Taxable income | Tax on that slice |
|---|---|
| $0 to $18,200 | Nil |
| $18,201 to $45,000 | 15 cents for each $1 over $18,200 |
| $45,001 to $135,000 | $4,020 plus 30 cents for each $1 over $45,000 |
| $135,001 to $190,000 | $31,020 plus 37 cents for each $1 over $135,000 |
| $190,001 and over | $51,370 plus 45 cents for each $1 over $190,000 |
Worked example: $90,000 a year
Nothing on the first $18,200. Then $26,800 × 15% = $4,020.
The remaining $45,000 is taxed at 30%, which is $13,500.
Income tax is $17,520. The Medicare levy is $1,800 (2% of $90,000).
Take-home pay is $70,680, or about $2,718 a fortnight. Your average rate is 21.5%.
Does a pay rise ever make you worse off?
No. If a rise pushes you over $135,000, only the dollars above that line are taxed at 37% instead of 30%. You keep about 63 cents of each extra dollar, not nothing. Some income-tested benefits, offsets or HELP repayments can cut into a rise, which is why it's worth modelling the whole picture.
✨ Key Takeaways
- Tax is charged slice by slice, not on your whole income.
- The Medicare levy is generally another 2%.
- A pay rise always increases take-home pay, even if less of it is kept.
- Check the ATO for the current year's rates.
Open the income tax calculator →