In 2026, your take-home pay may be a bit higher thanks to ongoing tax cuts and adjusted Medicare levy thresholds.
The personal income tax system still uses progressive brackets (0%, 16%, 30%, 37%, 45%) for 2025–26, with a legislated reduction to 15% on the $18,201–$45,000 bracket from 1 July 2026 (and 14% from 2027).
These changes boost after-tax income for most Australians, especially lower and middle earners.
Why This Matters to Your Pay Packet
Tax cuts aren’t just budget headlines, they directly affect how much of your hard-earned money you actually keep. When marginal rates go down, or thresholds change, your employer withholds less tax, so your fortnightly or monthly pay can increase. You may also pay less Medicare levy if your income is near the exemption thresholds.
What Are the 2025–26 Tax Rates for Australian Residents?
The ATO defines your tax brackets based on your taxable income, the amount left after deductions and allowable offsets. These rates apply for the 2025–26 income year (1 July 2025–30 June 2026).
2025–26 Resident Tax Rates (Before Medicare Levy)
| Taxable Income | Marginal Tax Rate | Tax Payable on Excess |
| $0 – $18,200 | 0% (Tax-free) | Nil |
| $18,201 – $45,000 | 16% | 16c for every $1 over $18,200 |
| $45,001 – $135,000 | 30% | $4,288+30c for each $1 over $45,000 |
| $135,001 – $190,000 | 37% | $31,288+37c per $1 over $135,000 |
| $190,001+ | 45% | $51,638+45c per $1 over $190,000 |
These tax rates are current for 2025–26 and remain in effect until the legislated changes from 1 July 2026 take place.
Important: These figures do not include the Medicare levy (2%) or Medicare levy surcharge (1%–1.5%). You’ll usually pay these on top of your income tax.
What’s Changing in 2026 and Beyond?
The Federal Budget introduced additional personal income tax cuts that start 1 July 2026 and continue into 2027:
From 1 July 2026
- The tax rate for income between $18,201 and $45,000 drops from 16% to 15%.
- All other brackets stay the same.
From 1 July 2027
- The same bracket rate will be reduced further to 14%.
Why this matters: Even a small drop (e.g., 16% → 15%) can add up to hundreds of extra dollars in your pocket each year, particularly if you earn in that bracket. These changes are automatic once legislation is enacted.
How the Medicare Levy Works in 2026
Most Australian residents pay a 2% Medicare levy on taxable income to help fund public healthcare. You may not pay it or pay less if your income is below certain thresholds.
Medicare Levy Thresholds (2025–26)
From 1 July 2024, the thresholds were increased:
- If your taxable income was under $27,222 in 2024–25, you are exempt from the Medicare Levy.
- If your income was between $27,222 and $34,027, the Levy is phased in at 10 cents for each dollar above $27,222.
- Once your income reaches $34,027 or more, you pay the full Medicare Levy of 2% of your taxable income.
- These Medicare Levy amounts are in addition to any income tax you pay under the regular tax brackets.
2025–26 income thresholds (low threshold → full Medicare Levy of 2%):
- Singles: $27,222 → $34,027
- Single seniors and pensioners: $43,020 → $53,775
- Families: $45,907 (plus $4,216 per dependent child) → $57,383 (plus $5,270 per dependent child)
- Families (seniors and pensioners): $59,886 (plus $4,216 per dependent child) → $74,857 (plus $5,270 per dependent child)
If your income is below these amounts, you may pay no levy or a reduced levy when you lodge your tax return.
What About the Medicare Levy Surcharge (MLS)?
If you don’t have eligible private hospital cover and earn above certain levels, you might pay an additional surcharge on top of the Medicare levy, between 1% and 1.5%. The MLS kicks in at higher income tiers.
2025–26 MLS Thresholds (Examples)
| Status | Base Threshold (0%) | Tier 1 (1%) | Tier 2 (1.25%) | Tier 3 (1.5%) |
| Single | Up to $101,000 | $101k–$118k | $118k–$158k | $158k+ |
| Family | Up to $202,000 | $202k–$236k | $236k–$316k | $316k+ |
| Medicare Levy Surcharge | 0% | 1% | 1.25% | 1.5% |
Pro Tax Tip: If you’re a higher earner without private health cover, MLS can outweigh basic hospital policy premiums. Shopping around can sometimes save money and reduce your MLS liability.
Australian Residency for Tax Purposes
Your tax rate and eligibility for offsets and thresholds depend on whether you are an Australian resident for tax purposes, which isn’t strictly tied to citizenship or visa type.
The ATO uses several tests to decide residency, including:
- Resident test – do you live here in practice?
- Domicile test – is your permanent home in Australia?
- 183-day test – are you here more than half the income year?
- Commonwealth superannuation test – special rule for certain workers.
If you pass any of the tests, you’re generally treated as a resident for tax purposes, meaning you get the tax-free threshold and lower rates.
If you’re not sure what your status is, check the ATO’s official residency guide or talk to our experts.
How These Rates Affect You
1. Jane earns $60,000
Tax (before Medicare): $8,788
Medicare Levy (2%): $1,200
Total tax $9,988 — so her effective rate is about 16.6%.
2. Ben earns $90,000
Tax (before Medicare): $17,788
Medicare Levy (2%): $1,800
Total tax $19,588 — effective rate 21.8%.
These figures are approximate and don’t include any deductions or offsets, like work-related expenses, super contributions, or LITO.
Always crunch your own numbers or ask us for help.
What This Means for Your Wallet
The 2026 tax changes are designed to make the system fairer and to boost take-home pay, especially for lower and middle-income earners.
A modest cut on the $18,201–$45,000 bracket from 1 July 2026 should mean more money stays in your pocket, while expanded Medicare levy thresholds ease the burden for low-income taxpayers.
But tax is personal. The real impact depends on your individual income, deductions,s and lifestyle choices like private health cover.
That’s where expert advice can make a real difference.
Frequently Asked Questions
Do these tax changes affect PAYG withholding now?
Yes. Payroll systems (e.g. MYOB, Xero) use ATO tax tables for correct Pay As You Go (PAYG) withholding. Your employer should already be using updated rates for 2025–26.
Is the LMITO back in 2026?
No. The Low and Middle Income Tax Offset (LMITO) expired after 2022–23. Only the Low Income Tax Offset (LITO) still applies.
Why does my take-home pay sometimes drop after a raise?
Only part of your income moves into a higher bracket. You don’t lose money overall. Temporary dips can occur due to payroll settings, but the annual tax is fairer once your return is lodged.
Ready to make the most of the latest tax rules?
Talk to an ITP tax specialist today. We’ll help you optimise your tax position and boost your take-home pay. Book a consultation with an ITP Accounting Professional today.
Disclaimer: This article is general information only and doesn’t take into account your personal circumstances. Tax law changes frequently. Always consult a registered tax agent or refer to the ATO’s official resources before making decisions.