| Taxable income | Published marginal tax rate (2025-26) | Published marginal tax rate (2026-27) |
| $0 – $18,200 | 0% | 0% |
| $18,201 – $45,000 | 16% | 15% |
| $45,001 – $135,000 | 30% | 30% |
| $135,001 – $190,000 | 37% | 37% |
| Over $190,000 | 45% | 45% |
Australia's published income tax rates remain accurate and important. However, depending on your income, they may not fully reflect the effective tax rate that applies to your next dollar of earnings because tax offsets and the Medicare Levy can also influence the outcome. If you're unsure how your effective marginal tax rate applies to your circumstances, our Tax Experts can help you understand your tax position and make informed financial decisions.
Did you know? Australia has five published income tax brackets, but many Australians earning up to around $75,000 actually experience eight different effective marginal tax rates. |
It is important to understand that this does not mean Australia's published tax tables are incorrect.
Rather, they describe one part of Australia's personal tax system.
Your published marginal tax rate tells you the statutory income tax rate that applies to your next dollar of taxable income.
Your effective marginal tax rate goes one step further.
It reflects the combined impact of:
As a result, two taxpayers within the same published tax bracket may not necessarily experience exactly the same effective tax rate on their next dollar of income.
This distinction is often overlooked because published tax tables focus solely on income tax, while taxpayers experience the combined effect of multiple tax settings.
| Marginal Tax Rate | Effective Marginal Tax Rate (EMTR) |
| Based on the published income tax schedule | Based on the combined impact of income tax, tax offsets and levies |
| Shows only the statutory income tax rate | Reflects the actual tax impact of earning additional income |
| Does not include LITO | Includes the effect of LITO where applicable |
| Does not include the Medicare Levy phase-in | Includes Medicare Levy interactions where applicable |
| Used in published tax tables | Helps explain real-world tax outcomes |
In simple terms:
For many Australians, particularly those on low and middle incomes, this distinction helps explain why earning more income does not always increase take-home pay by exactly the amount they expected.
For most taxpayers, understanding an effective marginal tax rate is not about calculating tax manually.
It is about setting realistic expectations when earning additional income.
For example, you might wonder:
These are practical questions many Australians ask every year.
The answer is not determined solely by the published income tax brackets. Depending on your taxable income, the interaction between income tax, the Low Income Tax Offset and the Medicare Levy may also influence the outcome.
Understanding your effective marginal tax rate provides valuable context when making work and financial decisions.
Looking only at Australia's published income tax rates, taxpayers appear to move through a relatively straightforward series of tax brackets.
However, income tax is only one component of Australia's personal tax system.
For many taxpayers earning up to around $75,000, two additional features also influence the tax paid on the next dollar of income:
Because these settings begin, phase in and phase out at different income levels, the effective marginal tax rate experienced by many Australians changes several times before they even reach the standard 30% income tax bracket.
This means that while the published tax schedule appears simple, the actual effective tax rate on each additional dollar earned is not always constant across the income range.
The effective marginal tax rates below are simplified examples for an Australian resident individual entitled to the Low Income Tax Offset and subject to the Medicare Levy. Actual outcomes may differ depending on your personal circumstances, including Medicare Levy exemptions or family medicare reductions, liability for the Medicare Levy Surcharge and other liabilities, such as Training and Study Loan Repayments and other tax offsets and as well as the type of income you earn.
| Approximate taxable income | Effective marginal tax rate | Why it changes |
| $0 – $18,200 | 0% | Tax-free threshold applies. |
| $18,201 – $22,575 | 0% | Standard 16% income tax applies however LITO fully offsets the first $700 of tax. |
| $22,576 - $28,011 | 16% | Income tax continues at 16% while LITO remains the same. Tax payable is no longer fully offset by LITO. |
| $28,012– $35,013 | 26% | Income tax continues at 16% while Medicare Levy begins to phase in, adding around 10 percentage points to the effective rate. |
| $35,014– $37,500 | 18% | Medicare Levy now at 2%, increasing the effective rate above the published tax rate. |
| $37,501 – $45,000 | 23% | Medicare Levy of 2% applies. The LITO phases out at a rate of 5 cents in the dollar (5%). |
| $45,001 – around $66,667 | 33.5% | Taxpayers enter the 30% statutory tax bracket while paying the full 2% Medicare Levy. The LITO phase out at 1.5 cents in the dollar (1.5%). |
| $66,668 - $135,000 | 32% | Tax rate remains at 30% and medicare levy at 2%. |
For the 2026-27 year, the tax rates are set, however the medicare levy phase in thresholds are not yet available. The 2025-26 medicare thresholds have been used in the table below.
| Approximate taxable income | Effective marginal tax rate | Why it changes |
| $0 – $18,200 | 0% | Tax-free threshold applies. |
| $18,201 – $22,867 | 0% | Standard 15% income tax applies however LITO fully offsets the first $700 of tax. |
| $22,868 – $28,011 | 15% | Income tax continues at 15% while LITO remains the same. Tax payable is no longer fully offset by LITO. |
| $28,012– $35,013 | 25% | Income tax continues at 15% while Medicare Levy begins to phase in, adding around 10 percentage points to the effective rate. |
| $35,014– $37,500 | 17% | Medicare Levy now at 2%, increasing the effective rate above the published tax rate. |
| $37,501 – $45,000 | 22% | Medicare Levy of 2% applies, while the LITO phases out at a rate of 5 cents in the dollar (5%) |
| $45,001 – around $66,667 | 33.5% | Taxpayers enter the 30% statutory tax bracket while paying the full 2% Medicare Levy. The LITO phases out at 1.5 cents in the dollar (1.5%) |
| $66,668 - $135,000 | 32% | Tax rate remains at 30% and medicare levy at 2% |
At first glance, this sequence may appear unusual.
Rather than increasing steadily, the effective marginal tax rate rises, falls, rises again and then settles into the standard 30% tax bracket plus the Medicare Levy.
This is not because Australia's published tax brackets change unexpectedly. Instead, it is the result of multiple tax settings operating at different income thresholds.
Australia's published income tax rates remain unchanged. What changes is the interaction between income tax, the Low Income Tax Offset and the Medicare Levy, resulting in different effective marginal tax rates across the income range. If you're unsure how these interactions affect your own tax situation, our Tax Experts can explain how income tax, tax offsets and the Medicare Levy apply to your individual circumstances.
While the table above provides a useful overview, it is worth looking at what is happening at each stage.
The published income tax brackets do not change within these ranges. Instead, the interaction between income tax, the Low Income Tax Offset (LITO) and the Medicare Levy changes the effective tax paid on each additional dollar earned.
Income: Up to $18,200
| 2025-26 | 2026-27 | |
| Published Marginal Tax Rate | 0% | 0% |
| Effective Marginal Tax Rate | 0% | 0% |
The first $18,200 of taxable income is tax free.
This means every additional dollar earned within this range is kept by the taxpayer because no income tax applies.
For most individuals, this is the simplest part of Australia's tax system and is generally well understood.
Income (2025-26): $18,201 to $22,575
Income (2026-27): $18,201 to $22,867
| 2025-26 | 2026-27 | |
| Published Marginal Tax Rate | 16% | 15% |
| Effective Marginal Tax Rate | 0% | 0% |
Once taxable income exceeds the tax-free threshold, the published marginal tax begins to apply.
During this range income tax applies at 16 % for the 2025-26 year and 15% for the 2026-27 year. However, the low income tax offset fully offsets any tax payable. The medicare levy does not apply.
As a result, the effective marginal tax rate is 0%.
Income (2025-26): $22,576 to $28,011
Income (2026-27): $22,868 to approximately $28,011
| 2025-26 | 2026-27 | |
| Published Marginal Tax Rate | 16% | 15% |
| Effective Marginal Tax Rate | 16% | 15% |
The LITO still applies at the maximum rate, but does not fully offset the tax payable. The medicare levy does not yet apply. As a result, income in this bracket is taxed at the published marginal tax rate (16% for the 2025-26 year and 15% for the 2026-27 year).
Income: Approximately $28,011 to $35,013
| 2025-26 | 2026-27 | |
| Published Marginal Tax Rate | 16% | 15% |
| Effective Marginal Tax Rate | 26% | 25% |
This is where the tax system starts to become less intuitive.
Although the published income tax rate remains 16% for the 2025-26 year and 15% for the 2026-27 year, and the LITO remains constant, the Medicare Levy begins to phase in at a rate of 10% of the amount of income over the threshold of $28,011. This results in an effective marginal tax rate of 26% for the 2025-26 year and 25% for the 2026-27 year.
Importantly, this does not mean taxpayers suddenly pay the higher rate of tax on all of their income.
The higher effective rate applies only to additional income earned within this income range. Although this effective marginal tax rate appears extremely high, the tax and medicare levy payable in this phase in range would be higher if the 2% medicare levy was applied to the total taxable income.
Income: $35,014 - $37,500
| 2025-26 | 2026-27 | |
| Published Marginal Tax Rate | 16% | 15% |
| Effective Marginal Tax Rate | 18% | 17% |
Although the published marginal tax rate remains unchanged, the medicare levy has now been phased in to the full 2% of taxable income.
The result is an effective marginal tax rate of 18% for the 2025-26 year and 17% for the 2026-27 year.
Income: $37,500 to $45,000
| 2025-26 | 2026-27 | |
| Published Marginal Tax Rate | 16% | 15% |
| Effective Marginal Tax Rate | 23% | 22% |
During this income range, the Medicare Levy and tax rates remain the same, giving a combined rate of 18% for the 2025-26 year and 17% for the 2026-27 year, but the LITO begins to phase out at a rate of 5 cents for every $1 over $37,500, increasing the Effective Marginal Tax Rate by 5%.
As a result, the effective marginal tax rate is 23% for the 2025-26 year and 22% for the 2026-26 year, even though the published tax bracket has not changed.
Income: $45,001 to $66,667
| 2025-26 | 2026-27 | |
| Published Marginal Tax Rate | 30% | 30% |
| Effective Marginal Tax Rate | 33.5% | 33.5% |
During this income range, marginal tax rate increases to 30%, while the Medicare Levy remains at 2%. In addition, the LITO continues to phase out, but at a rate of 1.5 cents for every $1 over $45,000. This results in an Effective Marginal Tax Rate of 33.5%.
Income: $66,668 - $135,000
| 2025-26 | 2026-27 | |
| Published Marginal Tax Rate | 30% | 30% |
| Effective Marginal Tax Rate | 32% | 32% |
Once taxable income exceeds $66,667, taxpayers are no longer entitled to the LITO and the Medicare Levy generally applies in full.
As a result, the effective marginal tax rate becomes 32%, reflecting the published 30% income tax rate plus the 2% Medicare Levy.
The Low Income Tax Offset (LITO) is designed to reduce the amount of income tax paid by eligible low and middle-income earners.
Unlike a tax deduction, which reduces your taxable income, a tax offset directly reduces the amount of tax you need to pay.
For eligible taxpayers, LITO can reduce the amount of tax payable by up to the maximum amount available under the legislation.
However, this benefit does not remain constant across all income levels.
As taxable income increases, the offset gradually reduces until it phases out altogether.
This gradual withdrawal is one of the main reasons the effective marginal tax rate can differ from the published marginal tax rate.
Imagine two taxpayers who are both within the published 15% income tax bracket.
On paper, they appear to be taxed at exactly the same rate.
However, if one taxpayer is earning within the income range where the Low Income Tax Offset is being withdrawn, each additional dollar earned does not simply attract income tax.
It also reduces part of the taxpayer's available tax offset.
In practical terms, each additional dollar of income can have two effects:
When both effects occur together, the taxpayer's effective marginal tax rate becomes higher than the published income tax rate alone would suggest.
Suppose you are earning within the income range where the Low Income Tax Offset is gradually reducing.
You receive:
Although your published tax bracket has not changed, part of your tax offset may reduce as your income increases.
The result is that your effective tax on that additional income may be higher than expected.
Importantly, this does not mean you are paying more tax on all of your income.
It affects only the additional income earned within that particular income range.
"Once I start losing LITO, I'm worse off earning more money."
No.
You will generally still take home more money overall.
However, the amount you keep from each additional dollar may be lower than expected because income tax and the reduction in the tax offset are occurring at the same time.
Most Australian taxpayers are familiar with the Medicare Levy, which helps fund Australia's public healthcare system.
However, fewer people realise that the levy does not immediately apply in full once someone starts paying income tax.
Instead, eligible taxpayers move through low-income thresholds and phase-in arrangements before the full Medicare Levy applies. This means taxpayers can experience different effective marginal tax rates even though they remain within the same published tax bracket.
Viewed on its own, the Medicare Levy is relatively straightforward
The complexity is due to the phase in arrangement. The medicare levy is phased in at a rate of 10% of the difference between taxable income and the medicare levy threshold. It is important to note that taxpayers in this phase in range pay less overall tax and medicare under the phase in range than they would if the full 2% medicare levy was applied to their total taxable income.
The Medicare Levy is separate from income tax.
As a result, it can influence the tax paid on your next dollar of income without changing your published income tax bracket.
For example:
| Published income tax rate | Medicare Levy | Effective outcome |
| 15% | Not applicable as income below Medicare Levy threshold | EMTR is 15% |
| 15% | In low income phase in range | EMTR may be higher than 15% (25%) |
| 15% | Fully applies | EMTR becomes 17% |
| 30% | Fully applies | Effective rate becomes 32% |
This interaction helps explain why the effective marginal tax rate changes several times before taxpayers move into higher published income tax brackets.
Neither the Low Income Tax Offset nor the Medicare Levy is unusual on its own.
The complexity arises because they begin, phase in and phase out at different income levels while operating alongside Australia's progressive income tax system.
The table below summarises how each component contributes to your effective marginal tax rate.
| Component | Changes as income increases? | Can affect your EMTR? |
| Income tax | ✓ | ✓ |
| Low Income Tax Offset | ✓ | ✓ |
| Medicare Levy | ✓ | ✓ |
This is why Australia's published income tax schedule does not always tell the complete story about the effective tax paid on additional income.
Your published marginal tax rate remains an important part of understanding Australia's tax system. However, depending on your taxable income, the interaction between income tax, the Low Income Tax Offset and the Medicare Levy may result in an effective marginal tax rate that is different from the published tax rate alone. Everyone's tax situation is different. H&R Block Tax Experts can explain how your income, tax offsets and the Medicare Levy work together to affect your individual tax outcome.
Understanding effective marginal tax rates becomes much easier when viewed through situations that many Australians experience every year.
While most people do not calculate their EMTR manually, it can help explain why the after-tax benefit of earning additional income is not always as straightforward as looking at the published tax brackets.
Emma works part-time in retail and is offered additional weekend shifts during the busy Christmas period.
Her first question is a common one.
"How much of this extra income will I actually keep?"
Looking only at the published tax tables may not provide the complete answer.
Depending on Emma's taxable income, her additional earnings could also interact with the Low Income Tax Offset or the Medicare Levy.
While she will still be financially better off by earning more income, understanding her effective marginal tax rate provides a clearer picture of how much of that extra income she is likely to keep after tax.
James works full-time in manufacturing.
His employer offers regular overtime over the next six months.
James assumes the additional income will simply be taxed at his published marginal tax rate.
In practice, the effective tax applying to those additional earnings may also be influenced by the interaction between income tax, the Low Income Tax Offset and the Medicare Levy, depending on his total taxable income for the year.
Understanding this interaction helps him estimate his likely take-home pay more accurately.
Sarah earns $45,000 from her full-time job and is considering earning additional income through rideshare driving.
Looking at the published tax tables alone, she may assume the extra income will simply be taxed according to the relevant income tax bracket of 30%. However, will also pay medicare levy on the additional income, increasing the amount payable to 32%.
In addition, any income Sarah earns above her full time employment income of $45,000 (until she reaches a taxable income of $66,667) will result in her losing her low income tax offset at a rate of 1.5%, resulting in an effective marginal tax rate of 33.5%.
This does not mean the side hustle is not worthwhile.
Rather, understanding her effective marginal tax rate gives Sarah a more realistic expectation of her after-tax income.
Many Australians supplement their income with casual or seasonal work.
Whether it is hospitality, rideshare driving, tutoring or freelance work, additional earnings can increase taxable income.
It is common to hear people say:
"My second job will all be taxed at a higher rate."
That is not how Australia's progressive tax system works.
Only the additional income is taxed at the applicable marginal or effective marginal tax rate.
Understanding how that rate is calculated can help set realistic expectations about take-home pay and reduce one of the most common tax misconceptions.
Imagine you are planning to start a small business or side hustle.
To generate income, you purchase equipment such as specialised tools, a professional camera or other work-related assets.
When deciding whether that investment makes financial sense, one factor to consider is your expected after-tax return.
If you assume you are paying only the published income tax rate, the investment may appear more profitable than it actually is.
Understanding your effective marginal tax rate provides a more accurate picture of your likely after-tax position and can help you make better informed financial decisions.
Receiving a promotion is generally positive. It often comes with higher income, greater responsibility and improved long-term career opportunities.
However, many employees are surprised when their first pay after a promotion does not increase by as much as they expected.
In many cases, this simply reflects the interaction between:
Understanding how Australia's progressive tax system works, including effective marginal tax rates, can help explain these outcomes and reduce the common misconception that earning more money can leave you worse off.
Effective marginal tax rates do not change the fact that earning more income generally leaves you financially better off. Instead, they help explain how much of each additional dollar you may keep after the interaction between income tax, tax offsets and the Medicare Levy has been taken into account. If you're considering overtime, a second job, a side hustle or a pay rise, H&R Block Tax Experts can help you understand how the additional income may affect your after-tax position.
Most Australians do not need to calculate their effective marginal tax rate every year.
However, understanding the concept can make it easier to interpret how Australia's tax system works in practice.
It can also help explain why the financial outcome of earning additional income may differ from what the published tax brackets alone suggest.
Whether you are:
Understanding how income tax, the Low Income Tax Offset and the Medicare Levy interact can help you make more informed financial decisions.
Rather than focusing solely on the published tax rate, understanding your effective marginal tax rate provides a more complete picture of how Australia's tax system applies to additional income.
Australia's published income tax schedule remains an important part of the tax system.
It clearly shows the statutory tax rates that apply at different income levels.
However, those published rates do not necessarily reflect every component that influences the tax paid on your next dollar of income.
For taxpayers on low and middle incomes, the interaction between:
can create effective marginal tax rates that differ from the published income tax rate alone.
This does not mean the published tax tables are incorrect.
Rather, it highlights that Australia's personal tax system contains several interacting components. Together, they determine the effective tax outcome experienced by individual taxpayers.
Understanding this distinction can help explain why your take-home pay does not always increase by exactly the amount you expected when you earn additional income.
Tax simplification is often discussed in terms of reducing the number of tax brackets or changing headline income tax rates.
From a taxpayer's perspective, however, simplicity is also about understanding the real tax consequences of earning additional income.
For many Australians, a simpler system would be one where:
While Australia's progressive tax system is designed to achieve a range of objectives, understanding how its different components work together can help taxpayers make more informed financial decisions.
Australia's progressive tax system is designed to apply different tax settings at different income levels.
Published income tax rates, tax offsets and the Medicare Levy each serve different purposes.
Viewed individually, each part of the system is relatively straightforward.
The complexity arises because they interact with one another across different income thresholds.
For many taxpayers, understanding these interactions can make it easier to:
While most taxpayers do not need to calculate their effective marginal tax rate themselves, understanding the concept provides useful context when considering changes to employment, income or investment decisions.
Knowing your effective marginal tax rate does not change how much tax you pay. It helps you better understand how Australia's tax system works and why additional income may produce a different after-tax outcome than the published tax brackets alone suggest. If you're unsure how additional income may affect your tax outcome, our Tax Experts can provide personalised advice tailored to your individual circumstances.
Most Australians do not need to calculate their effective marginal tax rate manually.
However, understanding how Australia's tax system works can help you make more informed financial decisions and avoid some of the most common tax misconceptions.
Here are five practical steps to consider.
One of the biggest misconceptions about income tax is that moving into a higher tax bracket means all of your income is taxed at the higher rate.
That is not how Australia's tax system works.
Only the income above each tax threshold is taxed at the higher marginal rate.
Understanding this principle can help explain why earning more money generally leaves you financially better off, even if your effective marginal tax rate increases.
Your published marginal tax rate remains an important guide.
However, depending on your taxable income, other parts of the tax system may also influence the tax paid on your next dollar of income.
For many Australians, the interaction between:
means their effective marginal tax rate differs from the published tax rate alone.
Understanding these interactions can help explain why additional income does not always increase take-home pay by exactly the amount you expected.
If you are considering:
it is worth estimating your likely after-tax position rather than relying solely on the published income tax brackets.
This provides a more realistic understanding of how much additional income you are likely to keep.
Maintaining good tax records makes it easier to understand your overall tax position and claim the deductions you are entitled to.
This is particularly important if you:
Good record keeping also makes preparing and lodging your tax return much simpler.
Starting a business, changing jobs, investing in income-producing assets or receiving a significant salary increase can all affect your tax position.
A registered tax agent can explain how these changes may influence your overall tax outcome and help ensure your tax return is prepared accurately.
Australia's tax system is designed to accommodate a wide range of personal circumstances.
Whether you're an employee, contractor, sole trader or investor, understanding how different tax settings interact can sometimes be challenging.
At H&R Block, our experienced Tax Experts can help you:
With more than 400 offices across Australia, as well as online and phone appointments, expert tax help is available wherever and however you choose to lodge your return.
An effective marginal tax rate (EMTR) reflects the effective tax impact on an additional dollar of income after relevant parts of the tax system are taken into account. Depending on your taxable income and circumstances, this can include income tax, the Low Income Tax Offset (LITO) and the Medicare Levy.
Your marginal tax rate is the published income tax rate that applies to your next dollar of taxable income. Your effective marginal tax rate considers the combined effect of income tax and other relevant tax settings, such as the withdrawal of LITO and the Medicare Levy. As a result, your EMTR can differ from your published marginal tax rate.
Your effective marginal tax rate can be higher because earning additional income may have more than one tax effect. For example, additional income may attract income tax while also reducing your entitlement to LITO or interacting with the Medicare Levy. These combined effects can increase the effective rate applying to your next dollar of income.
Moving into a higher income tax bracket does not mean all of your income is taxed at the higher rate. Australia's income tax system is progressive, so the higher rate generally applies only to the portion of taxable income above the relevant threshold. While your effective marginal tax rate can affect how much of each additional dollar you keep, earning additional income will generally still increase your after-tax income.
The Low Income Tax Offset (LITO) can reduce the income tax payable by eligible taxpayers. As taxable income increases, LITO gradually reduces until it is no longer available. During the income ranges where LITO is being withdrawn, each additional dollar of income can both attract income tax and reduce the available offset, increasing the effective marginal tax rate.
Let a Tax Expert handle your tax return from start to finish at one of our 400+ offices nationwide.
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