Australia Income Tax 2025-26: What You Pay and How the Stage 3 Cuts Changed Everything

Australia's income tax changed significantly from 1 July 2024 with the Stage 3 tax cuts, and for most workers earning between A$45,000 and A$135,000, the rate dropped from 32.5% to 30%. If you have not checked your take-home pay since then, you are probably getting more than you think. Our Australia income tax calculator shows your exact figure, but here is how the system works behind it.

The 2025-26 tax brackets

For residents, income tax is charged in bands published by the Australian Taxation Office, and only the income inside each band is taxed at that band's rate:

• 0% on the first A$18,200 (the tax-free threshold)
• 16% on A$18,201 to A$45,000
• 30% on A$45,001 to A$135,000
• 37% on A$135,001 to A$190,000
• 45% on income above A$190,000

On a A$70,000 salary you pay 16% on the slice up to A$45,000 and 30% on the rest, plus the 2% Medicare Levy on your whole income. Once the levy is included, your effective rate works out to roughly 18.7% all in, far below the 30% headline of your top band. That gap between marginal and effective rate trips a lot of people up.

What changed with the Stage 3 cuts

Before July 2024, a single 32.5% rate applied across a huge range from A$18,200 to A$120,000. The Stage 3 reforms broke that up: a new 16% rate on the lowest band, and a lower 30% rate on the big A$45,000 to A$135,000 band. Middle earners got the largest benefit in dollar terms, and the top threshold for the 37% rate moved up to A$135,000. The result is more take-home pay for almost every full-time worker.

Medicare Levy and the surcharge

Nearly every resident pays the 2% Medicare Levy on top of income tax. Low earners pay a reduced rate or none, with the levy phasing in between roughly A$27,222 and A$34,027 of income. It is collected through your normal tax and funds the public health system.

There is a second charge to watch. Higher earners without private hospital cover pay the Medicare Levy Surcharge, between 1% and 1.5%, once income passes about A$101,000 for singles. The quirk is that basic private hospital cover often costs less than the surcharge itself, so for many people in that income range, taking out cover is the cheaper option. Our calculator lets you toggle cover to see the difference.

HECS and HELP repayments

If you studied at university, you likely carry a HECS-HELP debt. Once your income passes the threshold, around A$54,435 for 2025-26, compulsory repayments are taken automatically through the tax system. The repayment rises in steps as your income grows, from 1% up to 10%. The thresholds shift every year with indexation, so treat any estimate as a guide and confirm the current figure with the ATO.

The LITO offset

The Low Income Tax Offset quietly reduces tax for people on modest incomes. It is worth up to A$700 for those earning A$37,500 or less, then tapers away to zero by A$66,667. As an offset, it lowers the tax you owe rather than acting as a deduction, and it applies automatically when you lodge your return.

What is changing from July 2026

The cuts are not finished. From 1 July 2026, the 16% rate on the A$18,201 to A$45,000 band falls to 15%, worth up to A$268 a year. A further cut to 14% is legislated for July 2027. So your take-home pay is set to creep up again over the next two years without any change to your salary.

Non-residents and working holiday makers

The rules change if you are not a resident for tax purposes. Non-residents get no tax-free threshold at all, and pay 32.5% from the very first dollar up to A$135,000, then 37% and 45% on higher bands. They also do not pay the Medicare Levy. Working holiday makers have their own scale, starting at 15% up to A$45,000, which is why backpacker tax was such a talking point.

If you have moved to or from Australia partway through a year, your residency status for tax can be genuinely tricky, and it makes a large difference to your bill. The calculator lets you switch between resident, non-resident and working holiday maker so you can see the gap, but for a borderline case it is worth getting proper advice.

Deductions that reduce your tax

Australia has a generous approach to work-related deductions, and claiming them properly lowers your taxable income. Common ones include work-from-home running costs, professional memberships, self-education tied to your current job, tools and equipment, and the cost of managing your tax affairs. Donations to registered charities are deductible too.

The golden rule is that you need a genuine connection to earning your income, and you need records. A deduction reduces the income that gets taxed, so its value depends on your marginal rate. For someone in the 30% band, every A$1,000 of legitimate deductions saves A$300 in tax plus a slice of the Medicare Levy. Keep receipts through the year rather than scrambling at tax time.

Super sits on top of all this

One number that does not appear on your payslip as a deduction is superannuation. Your employer pays the 12% Super Guarantee on top of your gross salary, so it does not come out of your take-home pay at all. It goes straight into your fund and compounds for decades. See how it builds with the superannuation calculator, and once you know your take-home pay, plan your spending with the budget calculator.

Check your own take-home pay

The fastest way to make sense of all this is to apply it to your salary. Run your income through the Australia income tax calculator to see your tax, Medicare levy, any HECS repayment and your net pay per year and per month. Everything runs in your browser, so your income details never leave your device.

When tax time comes around, most people lodge through myTax in the ATO online services, and pre-filled data makes it faster than it used to be. If your affairs are simple, a salary and a bit of bank interest, you can often finish in under an hour. If you have investments, rental property or a side business, a registered tax agent usually pays for itself by finding deductions you would miss, and their fee is itself deductible.

This is general information, not financial advice. ATO rates and thresholds change each year and depend on your circumstances. Confirm the current figures at ato.gov.au or with a registered tax agent before acting.