Coaching Centre
Income tax and the Medicare levy
Using the 2026–27 resident tax table, calculating income tax and the 2% Medicare levy, marginal and average tax rates, and why a pay rise never lowers your take-home pay.
Income tax pays for schools, hospitals, roads and the pension. Australia uses a progressive system: the more you earn, the higher the rate on the extra dollars. The rates are set each year by the federal government. Below are the rates for Australian residents for the 2026–27 financial year.
The tax table
| Taxable income | Tax on this income |
|---|---|
| $\$0$ – $\$18{,}200$ | Nil |
| $\$18{,}201$ – $\$45{,}000$ | $15$c for each $\$1$ over $\$18{,}200$ |
| $\$45{,}001$ – $\$135{,}000$ | $\$4020$ plus $30$c for each $\$1$ over $\$45{,}000$ |
| $\$135{,}001$ – $\$190{,}000$ | $\$31{,}020$ plus $37$c for each $\$1$ over $\$135{,}000$ |
| $\$190{,}001$ and over | $\$51{,}370$ plus $45$c for each $\$1$ over $\$190{,}000$ |
The first $\$18{,}200$ is the tax-free threshold. The fixed amounts in the third column are just the tax on all the lower brackets added up: for example, $0.15 \times (45\,000 - 18\,200) = \$4020$.
Calculating the tax
Find the bracket your income falls in, then: tax $=$ fixed amount $+$ rate $\times$ (income $-$ bottom of the bracket).
Find the income tax on a taxable income of $\$32{,}000$.
Find the income tax on a taxable income of $\$57{,}598$.
The Medicare levy
On top of income tax, most taxpayers pay the Medicare levy of $2\%$ of their whole taxable income. It helps fund public hospitals and Medicare. People on low incomes pay less or none, and higher earners without private hospital cover may also pay the Medicare levy surcharge. In Standard questions, use $2\%$ unless told otherwise.
Find the Medicare levy and the total tax on a taxable income of $\$57{,}598$.
Marginal and average rates
Your marginal rate is the rate on your next dollar. Your average rate is your total tax divided by your income. At $\$57{,}598,$ the marginal rate is $30\%$ plus $2\%$ Medicare, but the average rate is only $8951.36 \div 57\,598 \approx 15.5\%$, because the lower brackets are taxed less or not at all.
Set the income to $\$57{,}598$ and check Examples 2 and 3. Then find the income where the average rate first reaches $20\%$.
Move from $\$44{,}000$ to $\$45{,}500$. The marginal rate jumps, but does the total tax jump? Explain what happens to the extra $\$1500$.
Your turn
Find the income tax and the Medicare levy on a taxable income of $\$150{,}000$.
Show the working
Bracket: $\$135{,}001$ to $\$190{,}000$. Tax $= 31\,020 + 0.37 \times (150\,000 - 135\,000) = 31\,020 + 5550 = \$36\,570$. Medicare: $0.02 \times 150\,000 = \$3000$. Total: $\$39{,}570$.
Using the 2026–27 table, find the income tax on a taxable income of $\$15{,}000$.
$\$15{,}000$ is below the $\$18{,}200$ tax-free threshold, so the tax is $\$0$.
Find the income tax on a taxable income of $\$30{,}000$.
$0.15 \times (30\,000 - 18\,200) = 0.15 \times 11\,800 = \$1770$.
Find the income tax on a taxable income of $\$80{,}000$.
$4020 + 0.30 \times (80\,000 - 45\,000) = 4020 + 10\,500 = \$14\,520$.
Find the Medicare levy on a taxable income of $\$80{,}000$.
$0.02 \times 80\,000 = \$1600$.
What is the marginal income tax rate (not counting Medicare) on a taxable income of $\$100{,}000$?
$\$100{,}000$ is in the $\$45{,}001$ to $\$135{,}000$ bracket, so the next dollar is taxed at $30\%$.
Find the income tax on a taxable income of $\$140{,}000$.
$31\,020 + 0.37 \times (140\,000 - 135\,000) = 31\,020 + 1850 = \$32\,870$.
Ella's pay rise moves her taxable income from $\$44{,}000$ to $\$45{,}500$. Which statement is true?
Tax goes from $0.15 \times 25\,800 = \$3870$ to $4020 + 0.30 \times 500 = \$4170$: $\$300$ more. She keeps $\$1200$ of the rise before Medicare.
For a taxable income of $\$80{,}000,$ find the average rate of tax including the Medicare levy, as a percentage to 2 decimal places.
Total: $14\,520 + 1600 = \$16\,120$. Average rate: $16\,120 \div 80\,000 \times 100 = 20.15\%$.
Exam style: Find the total of income tax and Medicare levy on a taxable income of $\$96{,}400$.
Tax: $4020 + 0.30 \times (96\,400 - 45\,000) = 4020 + 15\,420 = \$19\,440$. Medicare: $0.02 \times 96\,400 = \$1928$. Total: $\$21\,368$.
Exam style: A worker's income tax (not counting Medicare) was $\$10{,}020$. Find their taxable income.
This is more than $\$4020,$ so the income is above $\$45{,}000$. $10\,020 - 4020 = 6000$ of tax at $30$c, so the income is $6000 \div 0.30 = \$20\,000$ above $\$45{,}000$. Taxable income $= \$65\,000$.