How We Calculate Australian Income Tax
This page documents every rate, threshold, and formula our calculator uses for the 2025–26 financial year. All figures are sourced from the Australian Taxation Office.
1. Calculation pipeline
When you enter a salary, the calculator runs through these steps in order. Each step feeds into the next.
Step 1 — Normalise income. Convert the entered amount to an annual figure. Weekly is multiplied by 52, fortnightly by 26, monthly by 12, hourly by hours-per-week × weeks-per-year.
Step 2 — Extract base salary. If the entered amount includes super, divide by (1 + SG rate) to separate the gross salary from employer super contributions.
Step 3 — Calculate taxable income. Subtract salary sacrifice and work-related deductions from gross salary. The result is floored at $0.
Step 4 — Apply income tax brackets. Each portion of taxable income is taxed at the rate for the bracket it falls into (see table below). Bracket selection depends on residency status and whether the tax-free threshold is claimed.
Step 5 — Subtract tax offsets. The Low Income Tax Offset (LITO) and Senior Australians Tax Offset (SAPTO) are subtracted from the income tax amount. These offsets are non-refundable — they can reduce your tax to $0 but cannot create a refund on their own.
Step 6 — Add Medicare Levy. 2% of taxable income for residents, with a low-income shade-in reduction. Non-residents and working holiday makers are exempt.
Step 7 — Add Medicare Levy Surcharge. Applied only to residents without private hospital cover whose income exceeds $101,000.
Step 8 — Add HECS/HELP repayment. If enabled, the repayment is calculated on taxable income using the marginal rate structure (FY 2025–26) or flat rate brackets (earlier years).
Step 9 — Sum total tax. Income tax (after offsets) + Medicare Levy + MLS + HECS repayment.
Step 10 — Calculate take-home pay. Gross salary minus salary sacrifice minus total tax. The result is split into annual, monthly, fortnightly, and weekly amounts.
2. Income tax brackets — FY 2025–26
These are the current Australian resident income tax rates, effective from 1 July 2025. These rates reflect the revised Stage 3 tax cuts that took effect from 1 July 2024. The brackets are unchanged from FY 2024–25.
Australian residents (claiming tax-free threshold)
| Taxable income | Tax rate | Tax on this bracket |
|---|---|---|
| $0 – $18,200 | 0% | Nil |
| $18,201 – $45,000 | 16% | 16c for each $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 for each $1 over $135,000 |
| $190,001+ | 45% | $51,638 + 45c for each $1 over $190,000 |
Foreign residents
Foreign residents do not receive the tax-free threshold. The first $135,000 is taxed at a flat 30%.
| Taxable income | Tax rate |
|---|---|
| $0 – $135,000 | 30% |
| $135,001 – $190,000 | 37% |
| $190,001+ | 45% |
Working holiday makers (subclass 417/462)
Working holiday makers pay a flat 15% on the first $45,000, then standard rates above that.
| Taxable income | Tax rate |
|---|---|
| $0 – $45,000 | 15% |
| $45,001 – $135,000 | 30% |
| $135,001 – $190,000 | 37% |
| $190,001+ | 45% |
How progressive brackets work
A common misconception is that moving into a higher bracket means all your income is taxed at the higher rate. That is not how it works. Only the income within each bracket is taxed at that bracket’s rate. For example, if you earn $90,000 as a resident:
- First $18,200 is tax-free = $0
- Next $26,800 ($18,201–$45,000) at 16% = $4,288
- Next $45,000 ($45,001–$90,000) at 30% = $13,500
- Total income tax = $17,788 (before offsets)
3. Tax offsets — LITO & SAPTO
Tax offsets (also called rebates) directly reduce the amount of tax you owe. Unlike deductions, which reduce taxable income, offsets are subtracted from the calculated tax. Both LITO and SAPTO are non-refundable — they can reduce your tax to zero but will not generate a refund on their own.
Low Income Tax Offset (LITO)
LITO is available to all Australian residents. You do not need to claim it — the ATO applies it automatically when you lodge your return. Our calculator applies it at Step 5.
| Taxable income | LITO amount |
|---|---|
| $0 – $37,500 | $700 (full offset) |
| $37,501 – $45,000 | $700 minus 5c for each $1 over $37,500 |
| $45,001 – $66,667 | $325 minus 1.5c for each $1 over $45,000 |
| $66,668+ | Nil |
At $37,500, LITO is worth the full $700. It reduces to $325 at $45,000 (phased out at 5c/$1), then reduces to $0 at $66,667 (phased out at 1.5c/$1).
Seniors and Pensioners Tax Offset (SAPTO)
SAPTO is available to residents who have reached Age Pension age and meet the income test. Our calculator applies it when the “SAPTO eligible” option is enabled.
| Taxable income (single) | SAPTO amount |
|---|---|
| $0 – $33,532 | $2,230 (full offset) |
| $33,533 – $50,119 | $2,230 minus 12.5c for each $1 over $33,532 |
| $50,120+ | Nil |
Combined with the tax-free threshold and LITO, SAPTO means eligible single seniors can earn up to $33,532 before paying any income tax.
4. Medicare Levy
The Medicare Levy funds Australia’s public healthcare system. For FY 2025–26 the standard rate is 2% of taxable income for Australian residents. Non-residents and working holiday makers are exempt.
Low-income shade-in — FY 2025–26
To prevent low-income earners from facing a sudden jump to the full 2% levy, the ATO uses a shade-in mechanism that gradually phases in the levy between two thresholds.
| Taxable income | Medicare Levy |
|---|---|
| $0 – $27,222 | Nil |
| $27,223 – $34,027 | 10% × (income − $27,222) |
| $34,028+ | 2% × taxable income |
Shade-in formula: Between $27,222 and $34,027, the levy equals 10% of the amount your income exceeds $27,222. This gradually increases until it equals the full 2% at $34,027. For example, at $30,000 taxable income:
- Full 2% would be $600
- Shade-in: 10% × ($30,000 − $27,222) = $277.80
- You pay $277.80 (not the full $600)
5. Medicare Levy Surcharge (MLS)
The MLS is an additional charge on top of the Medicare Levy for Australian residents who do not hold private hospital cover and earn above the income threshold. It is designed to encourage higher earners to take out private health insurance and reduce demand on the public system.
MLS tiers — FY 2025–26
| Taxable income (singles) | MLS rate |
|---|---|
| $0 – $101,000 | 0% |
| $101,001 – $118,000 | 1.0% |
| $118,001 – $158,000 | 1.25% |
| $158,001+ | 1.5% |
These thresholds increased from FY 2024–25, where the tiers were $93,000 / $108,000 / $144,000. The MLS is applied to your entire taxable income, not just the portion above the threshold.
Our calculator applies the MLS when you select “No” for private health insurance and your residency status is set to Australian resident.
6. HECS/HELP repayments
If you have a HELP, VSL, SFSS, SSL, or ABSTUDY SSL debt, compulsory repayments are collected through the tax system once your repayment income exceeds the minimum threshold.
FY 2025–26: new marginal rate structure
From 1 July 2025, the government replaced the old flat-rate bracket system with a marginal rate structure. Under the old system, crossing a threshold by $1 could increase your repayment by hundreds or thousands of dollars. The new marginal system eliminates these cliff edges.
| Repayment income | Marginal rate | Repayment calculation |
|---|---|---|
| Below $67,000 | 0% | No repayment |
| $67,001 – $125,000 | 15% | 15% × (income − $67,000) |
| $125,001 – $179,285 | 17% | $8,700 + 17% × (income − $125,000) |
| $179,286+ | Flat 10% | 10% × total repayment income |
The $8,700 base for the second bracket equals 15% × ($125,000 − $67,000). Above $179,285, the system switches to a flat 10% of total income, which is equivalent to the cumulative marginal amount at that point.
FY 2024–25 and earlier: flat rate system
For financial years before 2025–26, our calculator uses the ATO’s published flat-rate repayment brackets. Under this system, crossing a threshold applies the new rate to your entire repayment income. For example, in FY 2024–25, the minimum threshold was $54,435 (1% rate) stepping up through 19 brackets to 10% at $159,664.
7. Superannuation
Employer Super Guarantee (SG) rate
The SG rate is legislated and has been incrementally increasing toward the target of 12%. Our calculator uses the correct rate for each financial year:
| Financial year | SG rate |
|---|---|
| 2021–22 | 10% |
| 2022–23 | 10.5% |
| 2023–24 | 11% |
| 2024–25 | 11.5% |
| 2025–26 | 12% |
Concessional contribution cap
For FY 2025–26 the concessional (before-tax) contribution cap is $30,000 per year (up from $27,500 in previous years). This cap includes employer SG contributions and any salary sacrifice. Our calculator checks your total concessional contributions and warns if you exceed the cap, as excess concessional contributions are taxed at your marginal rate rather than the 15% super fund tax rate.
“Salary includes super” toggle
Some job ads quote a total package including super. When you enable this option, the calculator divides your entered amount by (1 + SG rate) to extract the gross salary. For example, a $112,000 total package at 12% SG:
- Gross salary = $112,000 ÷ 1.12 = $100,000
- Super = $112,000 − $100,000 = $12,000
- Income tax is calculated on the $100,000 gross salary
8. Worked example — $90,000 salary
Here is a complete calculation for a common scenario: an Australian resident earning $90,000 per year in FY 2025–26, claiming the tax-free threshold, with a HECS debt, no salary sacrifice, no deductions, and private health insurance.
Taxable income
$90,000 (no deductions or salary sacrifice)
Income tax (progressive brackets)
- $0 – $18,200 at 0% = $0
- $18,201 – $45,000 at 16% = $4,288.00
- $45,001 – $90,000 at 30% = $13,500.00
- Gross tax = $17,788.00
LITO
Income is above $66,667, so LITO = $0
Income tax after offsets
$17,788.00 − $0 = $17,788.00
Medicare Levy
Income is above $34,027, so full 2%: $90,000 × 0.02 = $1,800.00
Medicare Levy Surcharge
Has private health insurance, so MLS = $0
HECS/HELP repayment (marginal system)
Income $90,000 falls in the $67,001–$125,000 bracket:
15% × ($90,000 − $67,000) = 15% × $23,000 = $3,450.00
Total tax
$17,788 + $1,800 + $0 + $3,450 = $23,038.00
Take-home pay
$90,000 − $23,038 = $66,962 per year
= $5,580 per month | $2,576 per fortnight | $1,288 per week
Rates
Effective rate: 25.6% | Marginal rate: 30%
Superannuation (not deducted from pay)
Employer SG: $90,000 × 12% = $10,800 per year
9. Residency status
The calculator supports four residency modes, which affect bracket selection, Medicare Levy eligibility, and access to tax offsets.
| Status | Tax-free threshold | Medicare Levy | LITO |
|---|---|---|---|
| Australian resident | $18,200 | Yes (2%) | Yes |
| Resident — no TFT claimed | None | Yes (2%) | No |
| Foreign resident | None | Exempt | No |
| Working holiday maker | None (15% flat to $45k) | Exempt | No |
10. Sub-calculators
In addition to the main income tax calculator, we offer specialised tools that build on the same calculation engine.
Reverse tax calculator
Enter a desired take-home pay and the calculator works backwards to find the gross salary required. It uses a binary search algorithm, testing gross salaries between $0 and $5,000,000 and converging to within $1 accuracy (typically in under 50 iterations).
Bonus tax calculator
Calculates the actual tax on a bonus by comparing total tax on your base salary alone versus base salary plus bonus. The difference is the true tax cost of the bonus. It also shows the incremental impact on HECS repayments, Medicare Levy, and MLS, and estimates employer PAYG withholding (marginal rate + 2% Medicare).
PAYG withholding checker
Compares the tax your employer withholds each pay period against the calculated expected amount. Flags over-withholding (likely refund) or under-withholding (likely tax bill) and suggests common reasons for discrepancies, including rounding, unclaimed deductions, HECS bracket mismatches, and MLS not being factored in.
11. Data sources
All rates, thresholds, and formulas are sourced from official ATO publications. We update the calculator as soon as new schedules are published (typically before the start of each financial year).
12. Limitations
This calculator provides estimates for employment income only and should not be treated as financial or tax advice. It does not account for:
- Investment income, rental income, or capital gains
- Foreign-sourced income
- Reportable fringe benefits or reportable employer super contributions
- Private health insurance rebate adjustments
- Family income thresholds for Medicare Levy and MLS
- Division 293 tax (additional 15% super tax for high-income earners above $250,000)
- Zone or overseas forces tax offsets
- SAPTO for couples (member of a couple thresholds differ)
Actual tax outcomes depend on your full financial circumstances. For personalised advice, consult a registered tax agent or qualified financial adviser.