ATO Tax Brackets 2025-26 and 2026-27: Rates & 60% Trap

Figuring out how much tax you’ll pay each year can feel like solving a puzzle — especially when the thresholds shift. With Stage 3 tax cuts arriving from July 2026, the ATO tax brackets are getting a quiet reshuffle. Whether you’re earning $100,000 or pushing past $400,000, the new rates and a hidden “60% trap” could change your take-home pay more than you expect.

Tax-free threshold: $18,200 ·
Top marginal rate: 45% ·
Medicare levy: 2% ·
2025-26 lowest rate: 16% ·
2026-27 lowest rate: 15%

Three key rates, one important contrast: the 2026-27 brackets lower the lowest marginal rate from 16% to 15%, while the rest hold steady.

What are the tax brackets in Australia?

Australia uses a progressive marginal tax system. The Australian Taxation Office (ATO official rates) publishes separate tables for residents and foreign residents. For residents, the first $18,200 is tax-free, then a series of brackets apply.

How does the tax-free threshold work?

The tax-free threshold means you pay zero tax on the first $18,200 of taxable income. Every dollar above $18,200 is taxed at the marginal rates. This threshold remains unchanged in both 2025-26 and 2026-27. If you have multiple employers, you can claim the threshold only from one payer to avoid underpayment.

The 2025-26 resident brackets: 16% on income from $18,201 to $45,000, 30% on $45,001–$135,000, 37% on $135,001–$190,000, and 45% over $190,000. These rates are confirmed by the ATO (official resident tax rates).

What are the tax brackets for 2026?

From 1 July 2026, Stage 3 tax cuts reshape the brackets. The ATO (resident tax rates page) shows the only change is the lowest bracket rate dropping from 16% to 15%. All other thresholds remain identical: $18,200–$45,000 at 15%, $45,001–$135,000 at 30%, $135,001–$190,000 at 37%, and >$190,000 at 45%.

This means a taxpayer earning $100,000 in 2026-27 will pay $4,288 + 30% of income over $45,000, same as the previous year, but with a slightly lower effective rate due to the 1% reduction on the first bracket. The Australian Labor Party (announcement of tax cuts) confirms a further cut to 14% from 1 July 2027, though this is subject to legislation.

Two brackets, one rate difference: 2025-26 vs 2026-27 side by side.

The implication: the headline change is modest — only the first bracket shifts — but it represents a $268 maximum benefit for those in the lowest bracket, and zero impact for high-income earners whose income starts above $45,000.

What are the new tax rules for Australia in 2026?

The new rules are primarily the Stage 3 tax cuts, already legislated. Beyond the bracket adjustment, there are no changes to the tax-free threshold, Medicare levy, or the top marginal rate. The Australian Government Budget (tax cut calculator) allows you to estimate your savings for 2027-28 compared to 2023-24 settings, which includes the cumulative impact of Stages 2 and 3.

Is there a new tax table for 2026?

Yes — the ATO publishes a new resident tax table for 2026-27. The only difference from the 2025-26 table is the 15% rate for the $18,201–$45,000 bracket. The ATO (official tax rates for residents) provides the exact numbers: $4,288 plus 30c per $1 over $45,000, unchanged. For high-income earners, the top bracket starts at $190,000 with 45% — same as before.

How much tax will I pay if I earn $400,000?

For a resident earning $400,000 in 2025-26, the tax calculation is straightforward using ATO brackets. On the first $18,200: $0. Then $18,201–$45,000: ($45,000 – $18,200) × 16% = $4,288. Then $45,001–$135,000: ($135,000 – $45,000) × 30% = $27,000, plus $4,288 = $31,288. Then $135,001–$190,000: ($190,000 – $135,000) × 37% = $20,350, total $51,638. Then $190,001–$400,000: ($400,000 – $190,000) × 45% = $94,500. Total income tax = $51,638 + $94,500 = $146,138. Add Medicare levy at 2% of taxable income: $8,000. Total tax = $154,138. Take-home: $245,862.

For 2026-27, the only difference is the first bracket rate drops to 15%, saving $1,000 on the $18,201–$45,000 chunk ($268 more than previous year? Actually: ($45,000-$18,200)×1% = $268). So total tax becomes $145,870 + Medicare $8,000 = $153,870, take-home $246,130. The PwC Tax Summaries (Australia individual tax overview) confirms no surtaxes or local taxes exist.

How much tax on $100,000 annual income?

For $100,000 in 2025-26: tax = $4,288 + 30% of ($100,000 – $45,000) = $4,288 + $16,500 = $20,788. Plus Medicare $2,000 = $22,788. Take-home $77,212. In 2026-27, the first bracket saves $268, so tax = $20,520 + $2,000 = $22,520, take-home $77,480.

The pattern is clear: the 2026 cuts benefit lower brackets proportionally more, but high earners see minimal change because their top income remains at 45%.

What is the 60% trap?

The “60% trap” is not an official ATO bracket — it’s a phenomenon where your effective marginal rate can climb to 60% or more due to the phase-out of tax offsets and deductions. For example, when a taxpayer earns between about $45,000 and $90,000, the phase-out of the low-income tax offset (LITO) adds an extra 5%–7% on top of the 30% marginal rate and 2% Medicare levy. Combined, the effective rate can reach 37%–45%, but the term “60% trap” is used more dramatically for cases where the Medicare levy surcharge and the loss of the private health insurance rebate create a high marginal rate for incomes around $140,000.

According to SuperGuide (Australian income tax analysis), the trap can push the effective rate over 60% for taxpayers in the $45,000–$135,000 range who lose childcare subsidies, family tax benefits, or have the Medicare levy surcharge apply. The ATO (foreign resident rates page) serves as a reminder that non-residents have a completely different bracket structure starting at 30%.

How does the 60% trap affect tax planning?

The trap means that earning an extra dollar can cost you up to 60 cents in tax and lost benefits. Planning around it involves timing income (e.g., salary sacrificing into super) or using the Medicare levy surcharge avoidance by holding private hospital cover. The SuperGuide analysis suggests that middle-income earners should model their effective rate before taking on additional work or investment income.

Timeline: Key dates for Australian tax brackets

• 1 July 2024 – Stage 2 tax cuts take effect (19% bracket became 16%, etc.)
• 1 July 2025 – 2025-26 rates apply with 16% lowest bracket
• 1 July 2026 – Stage 3 cuts begin; lowest bracket drops to 15%
• 1 July 2027 – Planned further reduction to 14% (subject to legislation, per ALP announcement)

Clarity check

Expert perspectives

“$51,638 plus 45c for each $1 over $190,000.”

— Australian Taxation Office (official resident tax rates page)

“The 60% trap is a real concern for middle-income earners who lose family benefits as their income rises.”

— SuperGuide (Australian superannuation and tax analysis)

For Australian taxpayers, the message is straightforward: the 2026-27 change is small but real, and the 60% trap is a planning puzzle, not a bracket shift. If you earn over $190,000, your top rate stays at 45%. For middle-income earners, the phase-out of offsets means every dollar matters more than the bracket suggests. The choice is clear: model your effective rate, or risk losing nearly two-thirds of a raise to tax and lost benefits.

Employers and bookkeepers can find detailed withholding instructions in the ATOs fortnightly tax table, which complements the updated tax brackets.

Frequently asked questions