If you’ve heard about tax cuts landing in Australian pay packets and you’re not quite sure what actually changed, you’re not alone. Between the Stage 3 tax cuts, ongoing bracket confusion, and a fresh round of cuts already legislated for 2026-27, it’s easy to lose track of what applies to you right now.
This guide walks through the current Australian income tax brackets for 2025-26, what’s changing next, and what it actually means for your take-home pay, with real numbers, not just percentages.
What Are the Latest Australian Tax Cuts?
The tax brackets you’re paying under right now took effect from 1 July 2024, as part of the Stage 3 tax cuts. They’re still in place for the 2025-26 financial year, with no changes to the rates or thresholds this year.
The main changes are that the second tax bracket has been reduced from 19% to 16%. The 30% tax bracket now applies to income up to $135,000 instead of ending at $120,000. The highest tax rate of 45% will now only apply to income above $190,000, rather than starting at $180,000.
Every income level benefits, but the gains get bigger the higher you earn — more on that below.
There’s also a second round of cuts already locked in for the future. From 1 July 2026, the 16% bracket falls again to 15%, and from 1 July 2027 it drops once more to 14%. These are legislated, not just proposed, so you can plan around them with reasonable confidence.
Australian Tax Brackets for 2025-26
Here’s what applies to Australian residents for income earned between 1 July 2025 and 30 June 2026, according to the ATO’s official tax rates:
| Taxable income | Tax rate |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 16% |
| $45,001 – $135,000 | 30% |
| $135,001 – $190,000 | 37% |
| $190,001 and over | 45% |
On top of this, most residents pay a 2% Medicare levy, and lower earners may be entitled to the Low Income Tax Offset (LITO), worth up to $700.
How Marginal Tax Rates Actually Work
This is the part that trips people up more than anything else in the tax system. Moving into a higher bracket does not mean your entire income gets taxed at that rate. Only the portion that falls within it does.
Take a professional earning $100,000. Nothing is paid on the first $18,200. The next slice, up to $45,000, is taxed at 16%. Everything from $45,001 to $100,000 is taxed at 30%, not the whole $100,000.
| Change | Old brackets | 2025-26 brackets |
|---|---|---|
| Tax payable | $22,967 | $20,788 |
| Annual saving | $2,179 |
Even though this person’s income sits well inside the “middle” bracket rather than the top one, the saving is still over $2,000 a year. And a pay rise will never leave you worse off after tax. You only ever pay the higher rate on the extra income above the threshold, never on what you were already earning. If you’re unsure exactly where your income sits, an individual tax accountant can walk you through the numbers.
Who Benefits the Most From the Current Tax Cuts?
The biggest dollar savings usually go to higher-income earners because they benefit from both lower tax rates and wider tax brackets. But for many middle-income Australians, the change can feel more noticeable in their weekly budget, as the 30% tax bracket now stretches across a much larger range of incomes than before.
A typical PAYG employee on $60,000, for example, pays $8,788 in tax under the 2025-26 brackets, compared with $9,967 under the old system:
| Change | Old brackets | 2025-26 brackets |
|---|---|---|
| Tax payable | $9,967 | $8,788 |
| Annual saving | $1,179 |
That’s roughly $22 a week back in take-home pay. At the other end of the scale, a higher-income earner on $180,000 sees a bigger dollar saving, even though it’s a smaller share of their total tax bill:
| Change | Old brackets | 2025-26 brackets |
|---|---|---|
| Tax payable | $51,667 | $47,938 |
| Annual saving | $3,729 |
So both the $60,000 earner and the $180,000 earner are better off, just by very different amounts, and for slightly different reasons. The lower earner benefits mostly from the rate cut on the second bracket; the higher earner benefits mostly from the threshold shifts higher up.
Impact on Take-Home Pay
The change won’t come as a tax refund. You’ll simply have a little more in your pay each cycle, depending on your income:
- Under $45,000: a smaller saving, since only part of your income sits in the discounted bracket.
- $45,000–$135,000: this is where the 30% bracket now applies right through, so most PAYG employees see a steady, consistent saving.
- Above $190,000: the top rate threshold moved up $10,000, so a portion of income that used to be taxed at 45% is now taxed at 37% instead.
Medicare Levy: Still Part of the Equation
The tax cuts only apply to income tax. The Medicare levy is still there, and most Australians will continue to pay 2% of their taxable income. Depending on your income and private health cover, you may also need to factor in the Medicare Levy Surcharge.
Will Your Employer Automatically Adjust Your Pay?
Yes. You don’t need to apply for these tax cuts or fill out any forms. Employers update PAYG withholding tables based on ATO guidance, so the extra take-home pay shows up in your regular pay cycle without you doing anything.
It’s a bit different if you’re self-employed. Compare a sole trader earning $70,000 in taxable income before and after the changes:
| Change | Old brackets | 2025-26 brackets |
|---|---|---|
| Tax payable | $13,217 | $11,788 |
| Annual saving | $1,429 |
Sole traders don’t usually see these savings in each pay like employees do, because they generally pay tax through PAYG instalments. The benefit shows up when their instalments are adjusted or when they lodge their tax return. A business tax accountant can help make sure your instalment rate reflects the new brackets rather than the old ones.
From 1 July 2026, when the 16% rate falls to 15%, this same sole trader will save a further $268 a year on top, the same flat saving anyone earning above $45,000 gets from that change, since the discounted rate applies across the full $18,201–$45,000 band regardless of total income.
Tax Planning Opportunities Worth Considering
Lower tax rates can change how useful some common tax strategies are.
- Salary sacrificing into super can still be worthwhile because concessional contributions are generally taxed at 15% when they go into your super fund, which is often lower than your personal tax rate.
- Timing deductions and income matters more if you’re near a bracket threshold, particularly around $45,000, $135,000, or $190,000.
- Reviewing your PAYG withholding or instalment rate is worth doing if you’ve had a pay rise or change in circumstances, so you’re not left with a large bill, or a large refund you didn’t need to give the ATO interest-free.
None of these requires exotic structures. They’re mostly about making sure your existing income and super arrangements line up with the current rates. Our tax planning services can help you work out which of these is worth prioritising for your situation.
Common Misconceptions About Tax Brackets
“I’ll take home less if a pay rise pushes me into a higher tax bracket.” Not true. Only the extra income above that threshold is taxed at the higher rate, not your entire income.
“The tax cuts mean everyone pays the same lower tax rate.” Not quite. Australia still uses a progressive tax system, so the rate you pay depends on your income level.
“I need to do something to get the tax cuts.” No. There’s nothing you need to apply for. Your employer will update PAYG withholding automatically, or it will flow through your PAYG instalments if you’re a sole trader.
When Professional Tax Advice Is Worth It
For most employees with a regular income, working out your tax bracket is fairly simple. It gets a bit more complicated if you run a business, earn money from different sources, need to manage super contribution limits, or want to plan ahead before the 2026-27 tax rate changes. In those situations, getting professional advice can help you avoid costly mistakes.
That’s where Clear Tax comes in. Our advisers help individuals and business owners turn these bracket changes into an actual plan, from PAYG withholding checks to super contribution timing, rather than just a number on a payslip. If you want to know exactly what these changes mean for your situation, get in touch with the Clear Tax Australia team for a tax return review.
FAQs
What are the latest Australian tax cuts?
These tax changes kicked in from 1 July 2024 and are still in place for 2025-26. The main changes were the lower 16% rate, a wider 30% tax bracket that now goes up to $135,000, and the 45% top tax rate starting at $190,000.
How much tax will I save?
It depends on your income. A $60,000 earner saves around $1,179 a year compared with pre-2024 rates; a $180,000 earner saves around $3,729.
Do I need to apply for the tax cuts?
No. Withholding is adjusted automatically by employers based on ATO tax tables.
When do the new tax rates apply?
The current rates apply for the full 2025-26 financial year. The next legislated cut, dropping the 16% rate to 15%, starts 1 July 2026.
How do tax brackets work?
Each rate only applies to the portion of income within that bracket, not your entire income. Higher earnings are never taxed at a lower net rate overall.
Will my employer automatically adjust PAYG withholding?
Yes. Employers update withholding in line with ATO guidance, so there’s nothing you need to submit or request.
