The single most persistent myth in Australian personal finance is that moving into a higher tax bracket can leave you worse off. It cannot. Marginal rates only ever apply to the dollars above each threshold — but the way payslips, HECS and Medicare interact makes it genuinely confusing, so let's build it up from the actual 2026–27 numbers.
The 2026–27 brackets
From 1 July 2026 the rate on the lowest taxable band drops from 16% to 15%, the first step of the legislated cuts announced in the 2025 federal budget.
| Taxable income | Marginal rate | Tax on the band |
|---|---|---|
| $0 – $18,200 | 0% | Nil |
| $18,201 – $45,000 | 15% | 15c per dollar over $18,200 |
| $45,001 – $135,000 | 30% | $4,020 + 30c per dollar over $45,000 |
| $135,001 – $190,000 | 37% | $31,020 + 37c per dollar over $135,000 |
| $190,001+ | 45% | $51,370 + 45c per dollar over $190,000 |
On top of income tax, most taxpayers pay the 2% Medicare levy on their whole taxable income (it phases in for low earners), and higher earners without private hospital cover pay the Medicare levy surcharge — which starts at singles income of $101,000.
A worked example: $90,000
Take a salary of $90,000 in 2026–27:
- The first $18,200 is tax-free.
- The next $26,800 (up to $45,000) is taxed at 15% → $4,020.
- The remaining $45,000 (from $45,000 to $90,000) is taxed at 30% → $13,500.
- Income tax total: $17,520.
- Medicare levy: 2% of $90,000 → $1,800.
Total: $19,320, leaving about $70,680 take-home (before super, HECS or offsets). Two rates matter here and they are very different numbers:
- Average rate: ~21.5% — what you actually pay across all your income.
- Marginal rate: 32% (30% + 2% Medicare) — what the next dollar costs you.
The marginal rate is the one that prices your decisions: overtime, a pay rise, extra shifts, salary sacrifice. The average rate is the one that describes your year. Confusing them is how people end up believing a $5,000 pay rise "isn't worth it". It is: at $90,000, a $5,000 rise puts $3,400 in your pocket. You can verify any figure in the pay rise calculator.
Where the "worse off" feeling comes from
While the tax scale itself can never make a rise leave you behind, three real cliff effects exist around it:
The Medicare levy surcharge is a genuine cliff. Cross $101,000 as a single without private hospital cover and the MLS applies to your whole income, not just the excess — 1% at the first tier. A rise from $100,000 to $102,000 can genuinely cost you close to its own value if you're uninsured. This is a surcharge design quirk, not the bracket system.
HECS/HELP repayments since July 2025 work marginally too — 15c per dollar above the $67,000 threshold — so they no longer create the old whole-income cliffs, but they do stack on top of your marginal rate. A graduate at $90,000 faces 32% tax plus 15% HELP on each extra dollar: 47 cents in the dollar total.
Family payments and the child care subsidy taper with family income. For a household in the taper zones, an extra dollar earned can simultaneously pay tax and reduce a subsidy. These interactions are real and worth modelling — but again, they are tapers, not the tax brackets themselves.
Why the 15% rate matters less than it looks
The 16% → 15% cut saves every taxpayer earning above $45,000 exactly the same amount: 1% of the $26,800 band, or $268 a year. It's a real cut, but it flows through as about $10 a fortnight — many people won't notice it in a payslip that also carries a July super guarantee change or a health insurance premium adjustment. (A further cut to 14% is legislated for 2027–28.)
Practical implications
Price decisions at your marginal rate. Deductions (work-from-home expenses, income protection premiums, investment property losses) are worth your marginal rate — 32 cents in the dollar at $90,000, 39 cents at $150,000. The same deduction is worth more to a higher earner; that's the arithmetic behind most tax-structuring behaviour in Australia.
Salary sacrifice arbitrage is marginal-rate arbitrage. Concessional super contributions are taxed at 15% inside the fund instead of your marginal rate — a 17-point saving at $90,000, a 30-point saving at $200,000.
Timing matters at the edges. If your income hovers near $101,000 (MLS) or near a family payment taper, deferring or accelerating income across 30 June — or a deductible contribution — can be worth real money.
Run your own salary through the take-home calculator — it applies these exact brackets, the Medicare levy phase-in, MLS tiers and HELP repayments, and shows the marginal and average rate side by side.
Rates per the legislated 2026–27 resident scale (Treasury Laws Amendment (Cost of Living Tax Cuts) Act). Medicare and MLS thresholds shown are the latest ATO-published figures; the 2026–27 indexed thresholds may adjust. General information, not tax advice.