A worked example
Priya is a registered nurse in Melbourne earning $85,000 in the 2025-26 financial year. She has no other income and wants to know her tax liability.
Her taxable income of $85,000 falls into two tax brackets. The first $18,200 is tax-free. From $18,201 to $45,000, she pays 16%, which works out to $4,288. From $45,001 to $85,000, she pays 30% on that $40,000, which is $12,000. Her income tax payable is $16,288.
On top of that, she pays the Medicare levy at 2% of her total income: $85,000 × 2% = $1,700. Her total tax and Medicare levy is $17,988.
Her marginal tax rate is 30%, meaning any extra dollar she earns (like overtime) is taxed at that rate. Her effective tax rate is 21.2% ($17,988 ÷ $85,000), which is the actual percentage of her income going to tax. This effective rate is always lower than the marginal rate because of the tax-free threshold and lower brackets below her top rate.
State-by-state differences
Income tax in Australia is a federal tax, so the same rates apply whether you live in Sydney, Darwin, or Hobart. The ATO administers it uniformly across all states and territories.
- NSW, VIC, QLD, WA, SA, TAS: No state-level income tax. The rates in this calculator apply equally to all residents of these states.
- ACT and NT: Same federal tax rates apply. However, payroll tax thresholds and stamp duty rates differ by territory, but these are employer and property taxes, not personal income tax.
- All territories: If you're a fly-in-fly-out worker based in one state but working in another (common for WA mining), your residency determines your tax obligations, not where you work. You still pay the same federal income tax regardless.
- Special considerations: Remote area allowances (common in NT and northern WA) are generally taxable income and should be included in your total. Zone tax offsets may reduce your final tax bill if you live in remote areas, but that's a separate calculation not captured in basic income tax rates.
Common mistakes people make
- Confusing gross and net income: Many people enter their take-home pay instead of their gross salary. The calculator needs your total earnings before tax, super, and other deductions. Check your payslip for "gross earnings" or your annual payment summary.
- Forgetting the Medicare levy: The figure you see in tax brackets doesn't include the 2% Medicare levy. Your actual tax bill is almost always 2% higher than the base income tax amount (unless you qualify for an exemption or reduction). Don't budget based on tax alone.
- Assuming their marginal rate is what they pay overall: If you earn $100,000, your marginal rate is 30%, but you don't pay 30% on the whole amount. The first $18,200 is tax-free, and lower rates apply below $100,000. Your effective rate is much lower, around 23%.
- Not accounting for PAYG variations: Your employer withholds tax each pay based on ATO schedules, but if you have multiple jobs or investment income, you might owe more at tax time. The calculator shows annual liability, not what's already been withheld.
What this calculator doesn't account for
This calculator assumes straightforward employment income and standard residency status. It does not account for salary sacrificing arrangements, including pre-tax super contributions beyond the standard employer contribution or novated leases, which reduce your taxable income.
Investment income such as rental properties, dividends with franking credits, or capital gains from shares and property require separate calculations with different tax treatment. The calculator also excludes tax offsets like the low and middle income tax offset (if still applicable), zone offsets for remote workers, or the seniors and pensioners tax offset.
If you earn over $250,000, Division 293 tax applies an additional 15% to super contributions, which isn't reflected here. Self-employed Australians with deductible business expenses will have a different taxable income than their gross revenue. Finally, non-residents pay tax from the first dollar with no tax-free threshold.
Edge cases and nuances
Working holiday makers on 417 or 462 visas pay a flat 15% on income up to $45,000, then regular rates above that, with no tax-free threshold. This significantly changes the calculation compared to residents.
If you turn 18 during the financial year and have unearned income (like trust distributions or investments), you might be subject to minor and student tax rates until your birthday, which are much higher than adult rates for unearned income. This doesn't affect wages from a job.
People receiving taxable Centrelink payments (Austudy, JobSeeker, parenting payment) need to include these in their income. Services Australia withholds tax on request, but many don't realise these payments push them over the tax-free threshold.
If you have a HELP, HECS, VSL, or other study loan debt, you'll pay an additional compulsory repayment percentage once your income exceeds $67,000 (2025-26 threshold). This isn't income tax but comes out at the same time and can be 1-10% of your income depending on how much you earn. The calculator doesn't include these repayments.
