ATO Tax Brackets for 2025: What You’ll Pay Based on Income
The ATO tax brackets for 2025 determine exactly how much income tax you’ll pay based on your earnings, and understanding these tax rates is crucial for managing your finances effectively. With ongoing cost-of-living pressures and recent announced changes providing relief to many Australians, knowing where your taxable income sits within these brackets can help you plan better and potentially save money.
This comprehensive guide breaks down the current tax rates, explains how they work in practice, and examines what changes lie ahead for Australian taxpayers. You’ll discover practical examples of tax calculations, learn about important tax offsets that can reduce your tax bill, and understand how future rate changes might affect your take-home pay.
Understanding Australia’s Current Income Tax Structure
Australia’s progressive tax system means you pay different rates on different portions of your income, ensuring fairness across all earning levels. The current structure provides significant relief through recent reforms while maintaining the essential services funding that Australians rely on.
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The 2025 Tax Brackets Breakdown
For both the 2024-25 and 2025-26 financial years, Australian residents face the following income tax rates on taxable income:
Taxable Income Range | Tax Calculation |
|---|---|
$0 – $18,200 | Tax-free threshold – pay no income tax |
$18,201 – $45,000 | 16c for each $1 over $18,200 |
$45,001 – $135,000 | $4,288 plus 30c for each $1 over $45,000 |
$135,001 – $190,000 | $31,288 plus 37c for each $1 over $135,000 |
$190,001 and above | $51,638 plus 45c for each $1 over $190,000 |
These rates represent significant improvements from previous years, particularly benefiting middle-income earners through reduced rates and higher thresholds. The updated tax tables apply from 1 July 2024 through to June 2025 and beyond.
How Progressive Taxation Actually Works
Many people think that if your income moves into a higher tax bracket, all your earnings are taxed at that higher rate. In reality, only the portion of your income that falls within each bracket is taxed at its specific rate.
For example, if you earn $60,000, your tax calculation works like this:
First $18,200: $0 (tax-free)
Next $26,800 ($18,201 to $45,000): $4,288 (16c rate)
Remaining $15,000 ($45,001 to $60,000): $4,500 (30c rate)
Total tax: $8,788 before tax offsets
The Effective Tax-Free Threshold
While the official threshold is $18,200, the Low-Income Tax Offset effectively extends this protection for individuals earning modest wages. This offset provides up to $700 in tax relief for eligible taxpayers, meaning you can earn up to approximately $22,575 before paying any income tax.
This offset automatically applies when you lodge your tax return, requiring no additional work from you. The result is greater support for low-income workers and those transitioning into employment.
Calculating Your Tax Liability: Practical Examples
Understanding your potential tax liability helps with budgeting and financial planning throughout the year. These real-world examples demonstrate how the current tax brackets affect different income levels, including any applicable Medicare Levy.
Annual Income | Gross Tax | Less LITO | Net Tax Payable | Take-home Pay |
|---|---|---|---|---|
$30,000 | $1,888 | $700 | $1,188 | $28,812 |
$50,000 | $5,788 | $250 | $5,538 | $44,462 |
$80,000 | $14,788 | $0 | $14,788 | $65,212 |
$150,000 | $36,838 | N/A | $36,838 | $113,162 |
$200,000 | $56,138 | N/A | $56,138 | $143,862 |
These calculations exclude the Medicare Levy (2% of taxable income) and any Medicare Levy Surcharge that may apply to higher earners without private health insurance.
Additional Levies to Consider
Beyond basic income tax, most Australian residents pay the Medicare Levy at 2% of taxable income for tax purposes. Higher-income earners may face additional charges if they don’t maintain adequate private health insurance:
Medicare Levy Surcharge Thresholds for 2025-26
Knowing whether your income or family’s income is above the Medicare Levy Surcharge thresholds can help you plan and avoid unexpected extra costs at tax time.
Singles earning over $101,000: 1.0% to 1.5% surcharge
Families earning over $202,000: 1.0% to 1.5% surcharge
These additional costs can significantly impact your total tax liability, particularly for higher earners. When using any tax calculator, ensure these levies are included in your calculations.
Future Tax Changes: What’s Coming in 2026 and Beyond
The Australian Government has announced additional tax cuts that will further reduce the tax burden for all Australian taxpayers, building on the current relief measures implemented from 1 July 2024.
Upcoming Rate Reductions
Changes ahead will lower the tax rates for many Australians over the next two years, offering extra savings and increasing take-home pay for individuals and families.
From 1 July 2026: The 16c tax rate (applying to income between $18,201 and $45,000) will reduce to 15c for each $1.
From 1 July 2027: The 15c rate will further reduce to 14c for each $1.
These changes will provide additional tax relief of $268 per year from the 2026-27 income year and an extra $268 from the 2027-28 financial year for anyone earning $45,000 or more.
Impact of Future Changes
Upcoming adjustments to the tax brackets will provide direct benefits for individuals across different income levels, making it easier to see real savings in your take-home pay.
Income Level | 2026–27 Additional Tax Cut | 2027–28 Total Additional Tax Cut | Combined Relief vs Pre-2024 | Notes |
|---|---|---|---|---|
$79,000 (Average) | $268 | $536 | Over $2,500 | Reflects combined annual tax relief |
$40,000 (Lower) | Up to $268 | Up to $536 | Progressive | Full benefit for eligible income levels |
Long-term Tax Policy Direction
These future changes aim to address bracket creep – the phenomenon where inflation and wage growth push taxpayers into higher tax brackets without any real increase in purchasing power. The reforms ensure average tax rates for typical earners won’t exceed 2023-24 levels until at least 2031-32.
The phased approach also supports economic stability by implementing changes gradually rather than delivering large tax cuts all at once. Updated legislation ensures these changes will apply automatically without requiring additional parliamentary approval.
Maximising Your Tax Position
Understanding the current and future tax landscape allows you to make informed decisions about your finances and potentially reduce your overall tax burden through legitimate tax planning strategies.
Planning for Tax Efficiency
Smart tax planning helps you understand how much tax applies to your income and ensures you’re not paying more than necessary through simple but effective strategies.
Claiming the Tax-Free Threshold: Only claim the tax-free threshold from one employer if you have multiple jobs, as claiming it from multiple sources can result in an unexpected tax bill when you lodge your annual statement. The tax on this income from your second job will be calculated at higher rates if you don’t claim the threshold correctly.
Understanding Offset Eligibility: The Low Income Tax Offset automatically applies if your taxable income is under $66,667, but provides maximum benefit for incomes under $37,500. No additional schedules or forms are required. This offset reduces the tax on this income, providing direct relief at tax time.
Medicare Levy Considerations: If your income approaches the Medicare Levy Surcharge thresholds, consider whether private health insurance might be cost-effective compared to paying the surcharge. The tax on this income includes both regular income tax and the Medicare Levy, so factor both into your planning.
Lump Sum Payments: Be aware that lump sum payments such as employment termination payments or unused leave payouts may be taxed differently and could push you into higher tax brackets temporarily. The tax on this income can be significant, so understand how these payments are treated before making decisions about timing or payment structures.
Professional Tax Advice
Given the complexity of the tax system and ongoing updates, including changes from the tax rates for the 2023–24 financial year to the current ATO tax brackets for 2025, seeking professional advice can help ensure that you’re not missing any deductions and you are minimising your overall tax. If you have investment income, run a business, or have more involved financial arrangements, tailored support is especially helpful. When reviewing your tax documents, you may also notice the ATO Indigenous Badge, which highlights the Australian Taxation Office’s commitment to supporting all communities, including Aboriginal and Torres Strait Islander peoples.
Recent changes to tax brackets represent some of the most significant reforms to personal income tax in years, impacting every Australian taxpayer. By staying up to date on how the current rates differ from those in 2023–24, you can make clear and confident decisions about your tax position and avoid paying more than you need to.
Wherever you are in your financial journey, understanding both the tax rates for 2023–24 and the new ATO tax brackets for 2025 can help you take advantage of every available form of tax relief. Always check for the latest information, updates, and details such as the inclusion of the ATO Indigenous Badge when managing your tax and remember that personalised advice is valuable as rules and thresholds may change.