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Tax Brackets Explained: What a Pay Rise Really Costs You

For Australian tax residents, income is taxed in brackets: the first $18,200 is tax-free, then each slice of income above that has its own rate, from 15% to 45%. Entering a higher income-tax bracket never raises the rate on your earlier income.

By MarnixPublished 20/09/2026Sources

Your manager offers you more hours, or a new role pays $6,000 a year more, and someone at work warns you that it'll push you into a higher tax bracket. That warning stops people saying yes to money they've earned, so it's worth knowing what a bracket really does before you decide.

The tax brackets for 2026–27

Australia taxes income in slices. The first $18,200 of your income each year is tax-free, which is called the tax-free threshold. Every slice above it has its own rate, called a marginal rate. These are the brackets for Australian residents for the financial year from 1 July 2026 to 30 June 2027.

Each slice of income has its own rate

Australian residents, 2026–27 income tax. The 2% Medicare levy is separate.

The brackets apply to your taxable income: everything you earn across the financial year, from every job and other source, minus any deductions. Because it's a yearly total, no single pay puts you in a bracket. Most people also pay the Medicare levy, 2% of taxable income, which helps fund the public health system. It sits outside the brackets, and our guide to the Medicare levy explains when it's lower.

A higher bracket only taxes the dollars inside it

Picture your income filling the brackets from the bottom up. The first $18,200 fills the tax-free slice, the next dollars up to $45,000 fill the 15% slice, and so on. Each slice keeps its own rate however much you earn above it.

So when a pay rise takes you past $45,000, only the dollars beyond $45,000 are taxed at 30%. The income you were already earning keeps its bracket rates.

What a $6,000 pay rise adds for Alex

Here's a made-up example. Alex works full time on $42,000 a year and is offered a role paying $48,000. The extra $6,000 crosses the $45,000 line, so it's split between two brackets.

Only the part of the rise above $45,000 is taxed at 30%

Alex is made up. 2026–27 resident rates, before offsets and Medicare.

Two smaller things move as well. The Medicare levy takes 2% of the extra, which is $120. And the low income tax offset, a reduction of up to $700 in the tax of people earning under $66,667, gets smaller as income rises, so Alex's falls by $195.

Altogether, Alex keeps $4,335 of the $6,000, about $167 more in each fortnightly pay. That's less than the headline number, but it's most of it.

How Alex's numbers are worked out

Income tax before offsets: on $42,000, 15% of the $23,800 above $18,200 is $3,570. On $48,000, it's $4,020 for the first $45,000 plus 30% of $3,000, which is $4,920. The difference is $1,350.

Low income tax offset: on $42,000, $700 less 5 cents for each dollar above $37,500 is $475. On $48,000, $325 less 1.5 cents for each dollar above $45,000 is $280. The offset falls by $195, so tax rises by that much.

Medicare levy: 2% of $42,000 is $840, and 2% of $48,000 is $960, a rise of $120.

In total, $1,350 + $195 + $120 = $1,665 more, leaving $4,335 of the $6,000. Over 26 fortnightly pays, that's $166.73 a pay. This assumes Alex is a full-year resident with no other income, deductions, HELP debt or Medicare levy surcharge.

Your bracket isn't the rate you pay overall

At $48,000, Alex is in the 30% bracket, but most of that income still sits in the tax-free and 15% slices. Income tax and Medicare together come to $5,600 for the year, about 12% of Alex's income.

Alex's next dollar loses 30c in income tax, plus Medicare and a little of the offset. The 12% is the overall share, which is why a payslip loses nowhere near 30% of the pay. If you have a HELP debt, its repayments work in slices on top of this, which our HECS-HELP guide explains.

Why one big pay can look heavily taxed

Your employer doesn't know what you'll earn over the whole year. Payroll works out the tax on each pay roughly as if you earned that much every pay, so a fortnight packed with overtime or extra shifts can have much more tax withheld than usual. That can look like the extra hours pushed you into a higher bracket, even when your yearly income hasn't moved far.

Your tax return then brings the whole year together. Any tax withheld above what you owe comes back in your refund, and our guide to your first tax return shows how that's settled. If you'd like to see a heavy week on a payslip, how overtime is paid and taxed walks through one, and your payslip explained shows which line is the tax withheld.

Two jobs at once add a twist, because each payroll only sees its own pay. Which one claims the tax-free threshold changes how much each takes out, as the tax-free threshold guide explains.

Plan around the extra pay

A pay rise is easy to absorb without noticing. When $167 more lands each fortnight and nothing else changes, it can blend into everyday spending.

To try this with your own salary, the take-home pay calculator estimates your pay after tax and Medicare for each week, fortnight or month, and the take-home pay guide follows one pay from gross to net.

The higher bracket taxes only part of the extra. You can weigh up the offer using what it adds after tax and any changes to repayments or benefits.

A note from us

A pay offer is easier to weigh up with the real numbers in front of you. Clova helps you plan where the extra goes once it arrives.

Common questions

What tax bracket am I in?

The one your taxable income for the whole financial year reaches. Add up what you expect to earn from every job and other income between 1 July and 30 June, take off any deductions, and find where that total lands in the 2026–27 table. That bracket's rate is your marginal rate: the rate on your next dollar, not on all of your income.

Do tax brackets apply to weekly or fortnightly pay?

No. The brackets apply to a full year's taxable income. Payroll uses the ATO's withholding tables to spread the expected tax across your pays, so the tax on each payslip is an estimate that your tax return settles once the year is over.

What is the top tax bracket in Australia?

45%, on taxable income above $190,000 for Australian residents in 2026–27. Only the dollars above $190,000 are taxed at that rate; the income below it is taxed in the lower brackets as usual.

Are the tax brackets changing?

Yes, a little. From 1 July 2027, the 15% rate on income between $18,201 and $45,000 is legislated to fall to 14%. The thresholds and the other rates stay the same under the current law.

Can a tax deduction move me into a lower bracket?

It can if it takes your taxable income below a threshold, but it doesn't need to for it to help. A deduction comes off the top of your income, so each dollar you claim saves tax at your marginal rate. Our guide to tax deductions shows that sum.

Do the same brackets apply if I'm not an Australian resident?

No. Foreign residents and working holiday makers have their own rates and don't get the $18,200 tax-free threshold. The brackets in this guide are for Australian residents for tax purposes.

Sources

Show all 7 sources

Income Tax Rates Act 1986, Schedule 7, in force from 1 July 2026 · Federal Register of Legislation
Tax rates: Australian residents · Australian Taxation Office
Low income tax offset · Australian Taxation Office
Medicare Levy Act 1986, law in force 1 July 2026 · Federal Register of Legislation
Withholding Schedules Instrument 2026, Schedules 1 and 8; PAYG from 1 July 2026 · Federal Register of Legislation
Tax rates: foreign residents · Australian Taxation Office
Tax rates: working holiday makers · Australian Taxation Office

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