ATO tax rates 2025-26 determine how much income tax you’ll pay this financial year and directly impact your take-home pay. Tax rates changed, here’s what it means for your take-home pay. With the 2025-26 financial year underway, understanding the Australian income tax brackets is critical for every employee, small business owner, and property investor. Forget the confusing jargon; this is your practical, no-fluff guide to what the ATO tax rates for 2025-26 mean for your money.
This article provides a clear breakdown of the numbers, their real-world impact, and the steps you need to take to plan your cash flow and salary decisions with accountant-grade confidence.
What You Need to Know
Here are the crucial points about the ATO tax rates for 2025–26 and what they mean for your wallet:
- No Bracket Changes: The tax brackets for 2025–26 are holding steady, providing welcome stability after the major Stage 3 tax cut changes in 2024.
- Middle-Income Benefit Continues: The broad 30% tax rate, covering incomes from $45,001 to $135,000, remains, benefiting a majority of Australian workers.
- Offsets Provide Relief: Key supports like the Low Income Tax Offset (LITO) continue, providing tax relief for lower-income earners.
- Calculate Your Tax Accurately: Use the worked examples in this guide to estimate your tax payable and avoid end-of-year surprises.
- Don’t Forget the Medicare Levy: Remember, the standard 2% Medicare Levy is payable on top of your income tax for most taxpayers.
- Plan Ahead Now: Use this stability to review your salary packaging, plan investments, and optimise your financial strategy for the year.
Official ATO Tax Rates for 2025-26 (Australian Residents)
The first step in smart financial management is knowing the official rules. The ATO tax rates 2025-26 dictate how much tax is withheld from your pay and what you ultimately owe. These rates apply to the financial year from 1 July 2025 to 30 June 2026.
These are the same brackets introduced with the revised Stage 3 tax cuts, bringing consistency for taxpayers. For full details on the latest rates, always refer to the official ATO website.
2025-26 Income Tax Brackets Table
This table shows the taxable income brackets and the corresponding tax rate for each bracket for the 2025-26 financial year.
| Taxable Income | Tax on This Income |
|---|---|
| $0 – $18,200 | 0% (Nil) |
| $18,201 – $45,000 | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,288 plus 30c for each $1 over $45,000 |
| $135,001 – $190,000 | $31,288 plus 37c for each $1 over $135,000 |
| $190,001 and over | $51,638 plus 45c for each $1 over $190,000 |
Note: These rates do not include the 2% Medicare levy. Always check current ATO guidance for the most up-to-date figures.
How the Progressive Tax System Works
Australia uses a progressive tax system. This means you don’t pay a single rate on your entire income. Instead, your income is divided into portions that are taxed at increasing rates.
Think of it like filling buckets:
- The first $18,200 you earn fills the tax-free threshold bucket (0% tax).
- Income above that spills into the next bucket ($18,201 – $45,000) and is taxed at 16%.
- This continues until you reach your total income.
The highest rate your income falls into is your marginal tax rate.
A Comparison: 2024-25 vs 2025-26 Tax Rates
For the 2025-26 financial year, the story is one of stability. The tax brackets are identical to the previous year, which is a direct result of the revised Stage 3 tax cuts that became effective on 1 July 2024. This consistency makes financial planning and forecasting much more predictable.
You can find more background information on these tax law changes on the official Treasury website.
What the Stage 3 Tax Cut Changes Mean for You
The core feature of the current tax structure is the significantly wider 30% tax bracket, which covers a broad income range from $45,001 to $135,000. This was designed to deliver meaningful tax relief to middle-income Australians. For this financial year, that benefit continues, locking in the savings from the previous year.
Side-by-Side Bracket Comparison
This table clearly illustrates the stability between the two financial years. For taxpayers, this means no new calculations are needed for budgeting your PAYG withholding or estimating your tax liability.
| Income Bracket | 2024–25 Tax Rate | 2025–26 Tax Rate |
|---|---|---|
| $0 – $18,200 | 0% | 0% (No Change) |
| $18,201 – $45,000 | 16% | 16% (No Change) |
| $45,001 – $135,000 | 30% | 30% (No Change) |
| $135,001 – $190,000 | 37% | 37% (No Change) |
| $190,001 and over | 45% | 45% (No Change) |
Note: These rates do not include the 2% Medicare levy. Always check current ATO guidance.
Let’s turn these percentages into dollars. Here’s a numbered process showing how to calculate your estimated tax for three common salaries. If you want a quick answer, use our income tax calculator.
How to Calculate Your Income Tax for 2025-26
Worked Example 1: $60,000 Salary
Step 1: The first $18,200 is tax-free. Tax = $0
Step 2: The portion from $18,201 to $45,000 ($26,800) is taxed at 16%. $26,800 x 0.16 = $4,288
Step 3: The remaining portion from $45,001 to $60,000 ($15,000) is taxed at 30%. $15,000 x 0.30 = $4,500
Step 4: Add the tax amounts together. Total Tax = $0 + $4,288 + $4,500 = $8,788
- Effective Tax Rate: ($8,788 / $60,000) = 14.65% (before Medicare levy).
Worked Example 2: $120,000 Salary
Step 1: Use the ATO formula: tax on the first $45,000 is a fixed $4,288.
Step 2: The remaining portion from $45,001 to $120,000 ($75,000) is taxed at 30%. $75,000 x 0.30 = $22,500
Step 3: Add the tax amounts together. Total Tax = $4,288 + $22,500 = $26,788
- Effective Tax Rate: ($26,788 / $120,000) = 22.32% (before Medicare levy).
Worked Example 3: $200,000 Salary
Step 1: Use the ATO formula: tax on the first $135,000 is a fixed $31,288.
Step 2: The portion from $135,001 to $190,000 ($55,000) is taxed at 37%. $55,000 x 0.37 = $20,350
Step 3: The final portion from $190,001 to $200,000 ($10,000) is taxed at 45%. $10,000 x 0.45 = $4,500
Step 4: Add the tax amounts together. Total Tax = $31,288 + $20,350 + $4,500 = $56,138
- Effective Tax Rate: ($56,138 / $200,000) = 28.07% (before Medicare levy).
Note: These are simplified examples. Your final tax payable depends on deductions, offsets, and other factors. Always check current ATO guidance and consider seeking professional advice.
Key Concepts You Must Understand
To properly manage your tax, you need to be clear on a few core concepts beyond the basic brackets.
Marginal vs. Effective Tax Rate
- Marginal Tax Rate: This is the rate of tax you pay on the last dollar you earn. In the $60,000 example, the marginal rate is 30%.
- Effective Tax Rate: This is the average rate of tax you pay on your entire taxable income. For the $60,000 earner, the effective rate is only 14.65%. Confusing the two is a common mistake that leads people to believe they are paying more tax than they actually are.
The Medicare Levy
The Medicare Levy is a 2% charge on your taxable income that most taxpayers pay to fund Australia’s public health system. It’s calculated separately and added to your final income tax bill. Exemptions and reductions may apply for low-income earners. You can learn more about what the Medicare Levy charge is here.
Low Income Tax Offset (LITO)
The Low Income Tax Offset (LITO) reduces the tax payable for lower-income earners. The maximum offset is $700 for those earning up to $37,500. This offset gradually reduces and phases out completely once your income reaches $66,667. The ATO automatically calculates this for you when you lodge your tax return.
Tax Planning Checklist for 2025-26
With stable tax rates, this is the perfect time to get organised. Use this checklist to make smart financial decisions throughout the year.
- Review Salary Packaging: Can you package items like a novated lease or additional super contributions to lower your taxable income?
- Track Deductions: Use an app or spreadsheet to log work-related expenses as they occur. Good bookkeeping habits are key.
- Optimise PAYG Withholding: If you consistently get large refunds or bills, ask your employer to adjust your PAYG instalments to better match your expected tax.
- Plan Capital Gains: If selling assets like shares or property, hold them for over 12 months to be eligible for the 50% CGT discount.
- Maximise Super Contributions: Consider contributing up to the concessional cap to reduce your tax bill and boost your retirement savings. Check the latest caps on the ATO website.
For tailored strategies, professional tax planning services can provide significant value.
Common Mistakes to Avoid (And How to Fix Them)
| Mistake | Fix |
|---|---|
| Confusing Marginal vs. Effective Rate | Remember your marginal rate only applies to your highest slice of income. Your effective rate (total tax divided by total income) is always lower and is a truer measure of your tax burden. |
| Ignoring the Medicare Levy | Always add 2% to your income tax calculation to account for the Medicare Levy. It’s not included in the main tax brackets and forgetting it leads to a tax shortfall. |
| Claiming the Tax-Free Threshold Twice | If you have two jobs, only claim the tax-free threshold from your primary source of income. Claiming it from both will almost certainly result in an unexpected tax bill when you lodge your BAS. |
Frequently Asked Questions
What are the tax rates for 2025–26 in Australia?
For the 2025-26 financial year, the resident income tax rates start at 0% for income up to $18,200. The rates then progress to 16%, 30%, 37%, and a top rate of 45% for income over $190,001.
How much tax do I pay on $100k?
On a taxable income of $100,000, you will pay approximately $20,788 in income tax for the 2025-26 financial year. This is before adding the 2% Medicare Levy and does not include any tax offsets you may be eligible for.
What are Stage 3 tax cuts?
The Stage 3 tax cuts are major changes to Australia’s income tax brackets that took effect on 1 July 2024. They primarily simplified the system by creating a very wide 30% tax bracket ($45,001 to $135,000) to provide tax relief to most Australians. The 2025-26 rates are a continuation of these changes.
What is the tax-free threshold?
The tax-free threshold is the amount of income you can earn each year before you have to pay any tax. For Australian residents in 2025-26, this amount is $18,200.
Do tax rates include Medicare levy?
No, the advertised income tax rates do not include the Medicare levy. For most taxpayers, you must add an extra 2% of your taxable income for the Medicare Levy to your final tax calculation.
Take Control of Your Tax Position
Understanding the ATO tax rates 2025-26 is the first step toward effective financial management. With stable brackets and predictable PAYG withholding, this year presents a valuable opportunity to get on the front foot with your planning. By using this guide to calculate your tax, avoid common errors, and implement smart strategies, you can improve your cash flow and build a stronger financial future.
For personalised advice that aligns with your specific financial goals, book a consultation with the experts at Nanak Accountants & Associates.
Call us today on 1300 NANAK TAX (626 258) to get started.
