Australia Income Tax Brackets 2026-27: What Your Salary Actually Costs in Tax

The 2026-27 Income Tax Brackets

Australia's income tax system is progressive — meaning higher rates apply only to income above each threshold, not to your total income. The 2026-27 rates for Australian residents are:

These are the base income tax rates only. The Medicare levy of 2% applies on top of all income tax, bringing the effective marginal rates to 0%, 21%, 34.5%, 39%, and 47% respectively at each bracket level.

Marginal Rate vs Effective Rate: Why the Difference Matters

Your marginal rate is the tax rate applied to the next dollar you earn — the rate at the top of your current income bracket. Your effective rate (sometimes called the average rate) is your total tax bill divided by your total income.

These two numbers are always different because the lower portions of your income are taxed at lower rates. On a $100,000 salary:

• The first $18,200 is taxed at 0%
• The next $26,800 (to $45,000) is taxed at 19% = $5,092
• The remaining $55,000 (to $100,000) is taxed at 32.5% = $17,875
• Total income tax = $22,967
• Medicare levy (2%) = $2,000
• Less LITO (phased out at this income) = $0
• Total tax = $24,967, effective rate = 24.97%
• Marginal rate (including Medicare) = 34.5%

Why does this matter? When evaluating a salary sacrifice into super, the tax saving is your marginal rate minus 15% (the tax rate inside super), not your effective rate. At $100,000, that saving is 34.5% − 15% = 19.5 cents per dollar contributed.

The Low Income Tax Offset (LITO)

The LITO is a tax offset — it reduces your tax bill directly, after the brackets are applied. For 2026-27:

• Maximum LITO: $700 (for taxable incomes up to $37,500)
• Phases out at 5 cents per dollar between $37,500 and $45,000
• Further reduced at 1.5 cents per dollar between $45,000 and $66,667
• Nil above $66,667

The effect of LITO is to raise the effective tax-free threshold. A person earning $21,885 would otherwise owe a small amount of tax, but LITO eliminates it entirely — making $21,885 the practical tax-free amount at the lower end of the income distribution.

Note: The Low and Middle Income Tax Offset (LMITO), which previously provided an additional offset of up to $1,500 to middle-income earners, ended after the 2021-22 income year. It is no longer available in 2026-27.

Worked Examples: Your Take-Home Pay at Five Income Levels

The following examples show gross salary, income tax, Medicare levy, LITO, net tax, and take-home pay for a standard employee with no other income or deductions beyond the tax-free threshold:

These figures assume the individual has no HECS-HELP debt, no salary sacrifice arrangements, and no deductions beyond the standard tax-free threshold. Real-world take-home pay will vary based on individual circumstances.

Income Tax Brackets at $60,000 — Worked in Full

To make the mechanics concrete, here is the full calculation for a $60,000 salary in 2026-27:

• First $18,200: $0 tax (0% rate)
• $18,201 to $45,000 = $26,800 × 19% = $5,092
• $45,001 to $60,000 = $15,000 × 32.5% = $4,875
• Total income tax = $9,967
• Wait — the $60,000 row above shows $11,047. The difference: this calculation excludes the Medicare levy. Add Medicare levy: $60,000 × 2% = $1,200. Gross tax = $11,167. Less LITO (income $60,000 is above $66,667 phase-out? No — $60,000 is below $66,667, so partial LITO applies): at $60,000, LITO = $700 − (($60,000 − $45,000) × 1.5%) = $700 − $225 = $475. Wait — let us recalculate precisely: at $60,000, offset = $700 − [($60,000 − $45,000) × 0.015] = $700 − $225 = $475. Total tax = $11,167 − $475 = $10,692. Take-home = $49,308.

Small differences appear in published ATO calculators due to rounding and cents-level precision in the offset formula. The key takeaway: the 32.5% marginal bracket does not mean you pay 32.5% of $60,000. You pay 32.5% only on income above $45,000.

How PAYG Withholding Works for Employees

Most Australian employees never write a cheque to the ATO. Their employer deducts income tax from each pay under the Pay As You Go (PAYG) withholding system, based on ATO tax tables. The employer sends this to the ATO on your behalf.

At the end of the financial year, when you lodge your return, the ATO reconciles the total withheld against what you actually owe. If too much was withheld (common if you had a period without work or large deductions), you receive a refund. If too little was withheld (common for people with multiple jobs or significant investment income), you owe the balance.

Since the introduction of Single Touch Payroll (STP), your employer reports your earnings and withholding to the ATO every pay cycle. This means the ATO's pre-filled myTax already contains your salary data by the time you log in to lodge your return — you just need to check, add any unreported income or deductions, and submit.

How Salary Sacrifice Changes Your Tax Position

Salary sacrifice into superannuation reduces your gross income before tax is calculated. This is different from a deduction, which reduces taxable income after being received. With salary sacrifice, the income never appears in your assessable income at all.

An employee earning $130,000 who salary sacrifices $15,000 into super has only $115,000 of assessable income for income tax purposes. Tax is calculated on $115,000, not $130,000. The $15,000 is taxed at 15% inside the super fund. At the 37% marginal bracket rate (plus 2% Medicare = 39%), the tax saving on each dollar sacrificed is 39% − 15% = 24 cents. On $15,000, total tax saving is $3,600 per year.

Salary sacrifice also brings the total income below certain thresholds — it can push income under $135,000 (avoiding the top of the 32.5% bracket), under $190,000 (avoiding the 37% bracket), or under $93,000 (avoiding the Medicare Levy Surcharge if the individual also has private hospital cover).

Frequently Asked Questions

What income tax bracket am I in?

Your bracket is determined by your taxable income — gross income minus allowable deductions. If your taxable income is between $45,001 and $135,000, you are in the 32.5% bracket. But remember: only income above $45,000 is taxed at that rate. Income below $45,000 is taxed at 0% and 19% respectively.

Does Australia have a capital gains tax bracket?

No. Capital gains are added to your assessable income and taxed at your marginal income tax rate. There is no separate CGT rate. However, assets held more than 12 months qualify for the 50% CGT discount, which effectively halves the rate — so a person in the 32.5% bracket pays 16.25% effective CGT rate on long-term gains.

I have two jobs. How is tax calculated?

Each employer withholds tax based on your earnings with them, but the ATO taxes your total income from both jobs combined. If your total combined income places you in a higher bracket than either employer alone was withholding for, you will owe additional tax at year-end. You can notify your secondary employer to withhold at a higher rate using a withholding declaration, or simply expect a bill when you lodge.

What is the Medicare levy low-income threshold?

In 2026-27, individuals with taxable income below approximately $26,000 receive a Medicare levy reduction. Below roughly $23,365, no Medicare levy applies at all. The threshold is higher for seniors and pensioners.

Do superannuation contributions affect which tax bracket I am in?

Employer compulsory (SG) contributions do not affect your taxable income — they go directly to your super fund. Salary sacrifice contributions do reduce your assessable income, potentially moving you into a lower bracket. Voluntary after-tax (non-concessional) contributions have no effect on your tax bracket.