Australian Tax Brackets, Tax-Free Threshold & Medicare Levy (2026)

Emma is a marketing manager in Brisbane. Her taxable income is $90,000, and her boss has just offered her a $1,000 raise. She asks a question many Australians ask: “Will I end up in a higher tax bracket and take home less?” The answer is no. Australia taxes each slice of income at its own rate, so a raise only ever taxes the extra dollars at your top rate. Understanding how those slices work, and where the 2% Medicare levy fits in, shows you what you really keep.

This guide covers resident tax rates, the tax-free threshold, the Medicare levy (including the low-income reduction) and the Medicare levy surcharge. It builds on our Australia Income Tax Explained (2026 Guide) and assumes you are an Australian resident for tax purposes. If you’re not sure, read our Australian Tax Residency Tests guide first.

📅 First, the Income Year

Australia’s income year runs from 1 July to 30 June. The year that ended on 30 June 2026 is “2025-26”, and the year running now is “2026-27”. If you’re lodging a return this month, it’s for 2025-26, and the 2025-26 rates below are the ones that apply to you. The self-lodge deadline is 31 October; registered tax agents generally have a later lodgment program, so ask yours.

📊 Resident Tax Rates

These are the ATO’s rates for Australian residents for the full year. They do not include the Medicare levy.

2025-26 (the return you’re lodging now)

2026-27 (income earned from 1 July 2026)

The only change between the two years is the second bracket, which drops from 16% to 15% from 1 July 2026. A further reduction to 14% is legislated from 1 July 2027, according to current published commentary; confirm on ato.gov.au when the time comes.

🆓 The Tax-Free Threshold

The first $18,200 of taxable income is taxed at 0%. This is the tax-free threshold, and it is available to Australian residents for tax purposes. Foreign residents don’t get it, which is one reason residency matters so much.

If you have more than one job, you can claim the tax-free threshold from only one payer at a time, usually your main job. Claiming it from two employers at once can leave you with a tax bill at year-end because too little tax was withheld.

👉 What to do next: If you work two jobs, tell your main employer you’re claiming the tax-free threshold, and tell the second one you are not. This is done on the tax file number declaration.

🧮 Worked Examples (2026-27 Rates)

How Emma’s $90,000 is calculated: $4,020 (tax on the first $45,000) + 30% × $45,000 ($13,500) = $17,520. Add the Medicare levy of $1,800 and the total is $19,320, about 21.5% of her income. That figure is her average rate. Her marginal rate is 30% plus 2% Medicare, or 32 cents on the next dollar.

So what about that $1,000 raise? It’s taxed at 32 cents in the dollar, so Emma keeps roughly $680 of it. She doesn’t lose anything from “moving up a bracket”, and she isn’t pushed into the 37% bracket, which only starts above $135,000.

These examples use only the rates and the 2% levy. They ignore offsets such as the low income tax offset, the Medicare levy surcharge, HELP repayments and other items on a real return.

🏥 The Medicare Levy

The Medicare levy helps fund Australia’s public health system. For most residents it is 2% of taxable income, charged on top of income tax and included in your assessment when you lodge. It is not part of the rates in the tables above.

Low-income reduction

If your income is low, the levy is reduced or removed. For 2025-26, the ATO lists these single-person thresholds:

Between the two figures, the levy phases in: you pay a percentage of the income above the lower threshold, until the full 2% applies at the upper threshold. Families have separate, higher thresholds based on family income. These thresholds are reviewed regularly, so check the ATO’s Medicare levy reduction page or its calculator for the year you are lodging.

Example: Noah, a part-time student in Adelaide, has taxable income of $30,000 in 2025-26. His income tax is 16% × ($30,000 − $18,200) = $1,888. Because he’s between the two thresholds, his Medicare levy is reduced and works out to roughly $199 rather than the full $600. (Offsets such as the low income tax offset may reduce his tax further.)

👉 What to do next: If your taxable income is below about $35,000, don’t assume you owe the full 2%. Use the ATO’s Medicare levy calculator to see the exact amount.

🛡️ The Medicare Levy Surcharge

This is a separate charge, on top of the levy. It applies if your income is above a threshold and you don’t hold appropriate private hospital cover. It does not apply if you hold eligible hospital cover for the full year. The ATO’s income thresholds for the surcharge are:

The family threshold rises by $1,500 for each dependent child after the first. “Income for surcharge purposes” is broader than taxable income: it can include items such as reportable fringe benefits and reportable super contributions, so your figure may be higher than the one at the bottom of your payslip.

⚠️ Common Mistakes

• Believing a raise can leave you with less money because of a “higher bracket”
• Using the wrong year’s rates (2025-26 vs 2026-27)
• Forgetting the Medicare levy when estimating tax, since it’s not in the ATO’s rate table
• Claiming the tax-free threshold from two employers at the same time
• Ignoring the Medicare levy surcharge when income is near or above the threshold
• Confusing taxable income (after deductions) with the income used for the surcharge

❓ FAQs

🏁 Conclusion and What to Read Next

Australian tax works in slices: nothing on the first $18,200, then rising rates on each portion of income above it, plus a 2% Medicare levy that’s reduced for low earners and a surcharge for higher earners without hospital cover. Know your marginal rate, use the right year’s table, and use the ATO’s calculators for the exact figures before you lodge.

Related reading on TaxPremia:

• Australia Income Tax Explained: The Complete 2026 Guide
• Australian Tax Residency Tests Explained
• All Australia Tax guides on TaxPremia

Coming soon in this series:

• How to Lodge Your Tax Return (myTax Step-by-Step)
• Work-Related Deductions: What You Can and Can’t Claim
• Superannuation Explained for Australian Employees

Disclaimer

This article is for general education only. Rates, thresholds and offsets change, and your tax outcome depends on your individual circumstances. TaxPremia is not a registered tax agent and this is not official ATO advice. Confirm current figures on ato.gov.au or consult a registered Australian tax agent.