If you've ever looked at your payslip and wondered where half your money went, you're not alone. Australia's income tax system is progressive — meaning the more you earn, the higher the rate you pay on each additional dollar. But most Australians don't fully understand how the brackets actually work, which leads to a lot of confusion at tax time.
How Progressive Tax Works
A common misconception is that if you earn $90,000 and move into a higher tax bracket, your entire income gets taxed at that higher rate. That's not how it works.
In Australia, you only pay the higher rate on the income above each threshold — not on everything you earn. Think of it like filling up buckets. Each bucket fills at its own rate, and only once a bucket is full does your income start filling the next one.
The 2025–26 Australian Tax Brackets
For Australian residents, the income tax rates for the 2025–26 financial year (after Stage 3 tax cuts) are:
| Taxable Income | Tax Rate |
|---|---|
| $0 – $18,200 | 0% (tax-free threshold) |
| $18,201 – $45,000 | 19% |
| $45,001 – $135,000 | 32.5% |
| $135,001 – $190,000 | 37% |
| $190,001 and above | 45% |
These rates do not include the Medicare Levy (an additional 2% for most earners).
Real Examples: What Do You Actually Pay?
On a $60,000 salary
$60,000 salary breakdown
On a $100,000 salary
$100,000 salary breakdown
On a $150,000 salary
$150,000 salary breakdown
What About the Medicare Levy?
On top of income tax, most Australians pay a Medicare Levy of 2% of their taxable income. This funds Australia's public healthcare system. If you earn $80,000, your Medicare Levy is $1,600 per year. Some people are exempt or pay a reduced levy — check with the ATO if you're unsure.
The Stage 3 Tax Cuts: What Changed?
The Stage 3 tax cuts restructured the middle brackets significantly. The biggest winners were middle-income earners — those earning between $45,000 and $135,000 — who saw the 32.5% bracket expand, reducing the tax they pay compared to previous years. Many people haven't noticed because it happened gradually through reduced PAYG withholding on payslips.
Don't Forget Super
Your employer is also required to pay Superannuation Guarantee contributions on top of your salary — currently 12% for 2025–26. This goes directly into your super fund and is not deducted from your take-home pay. On an $80,000 salary, that's an extra $9,600 your employer pays toward your retirement.
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- Australia uses a progressive tax system — higher rates only apply to income above each threshold
- The tax-free threshold is $18,200 — you pay no tax on income up to this amount
- The Medicare Levy adds 2% on top of income tax for most earners
- The Stage 3 tax cuts benefit middle-income earners most
- Your employer pays 12% super on top of your salary — separate from take-home pay