Income Tax Rates, Offsets, and Medicare Levy
The complete 2025-26 rate scale for Australian residents and non-residents, Stage 3 brackets, LITO, SAPTO, Medicare levy thresholds, MLS tiers, HELP repayments, and effective marginal rate cliffs every self-employed person should understand.
Australian residents pay income tax on a progressive scale from 0% to 45% under the Stage 3 settings that took effect 1 July 2024 and continue unchanged for 2025-26. The tax-free threshold is $18,200, the 16% band covers $18,201 to $45,000, the 30% band extends to $135,000, the 37% band runs to $190,000, and 45% applies above that. Medicare levy adds 2% to every band, and the Medicare Levy Surcharge adds 1% to 1.5% for higher earners without private hospital cover. LITO provides up to $700 for incomes below $66,667.
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Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact ATO. Read our editorial scope →
Resident individual tax rates 2025-26
The Stage 3 settings legislated from 1 July 2024 continue without change for 2025-26. The progressive scale starts with a $18,200 tax-free threshold and steps through four positive brackets. These rates exclude the 2% Medicare levy, which is calculated separately.
Non-resident and working holiday maker rates
Non-residents have no tax-free threshold and face a compressed scale. The first $135,000 is taxed at a flat 30%, with 37% applying to $135,001 to $190,000 and 45% above $190,000. Non-residents are generally not liable for the 2% Medicare levy. Working holiday makers on subclass 417/462 visas with a registered employer pay 15% on the first $45,000 and then standard resident-equivalent rates above that, with no tax-free threshold.
Non-refundable tax offsets: LITO and SAPTO
Non-refundable offsets reduce the tax payable to a minimum of zero but cannot generate a refund. LITO is the main offset available to most self-employed taxpayers. SAPTO applies to eligible older Australians and pensioners meeting age, pension, and income criteria.
LITO phase-out schedule
Maximum offset of $700 for taxable incomes at or below $37,500. Between $37,501 and $45,000, LITO reduces by 5 cents for each dollar over $37,500 (landing at $325 at $45,000). Between $45,001 and $66,667, LITO reduces by 1.5 cents for each dollar over $45,000 until it reaches zero. The offset is applied automatically after gross tax is calculated under s 4-10 ITAA 1997.
SAPTO
Available to individuals eligible for an Australian Government pension or allowance or meeting relevant age criteria. The maximum offset and income thresholds are published annually by the ATO and indexed. For 2024-25, the single lower threshold was $32,915, cutting out around $52,759. SAPTO is also non-refundable and interacts with Medicare levy low-income thresholds to determine the combined effective tax rate for eligible pensioners.
Medicare levy: 2% rate and low-income thresholds
The standard Medicare levy is 2% of taxable income for all Australian residents above the low-income threshold. Below the lower threshold, no levy applies. Between the lower and upper thresholds, the levy phases in at 10% of the excess over the lower threshold. Above the upper threshold, the full 2% applies to the entire taxable income.
Exemption categories
Full or half exemption applies under the Medicare Levy Act 1986 if you are a prescribed person: foreign residents for part or all of the year, certain Norfolk Island residents, defence force members, or veterans under specific schemes. Full exemption applies where you and your dependants were not entitled to Medicare for the entire year. Half exemption generally applies where entitlement was mixed across the year.
Medicare Levy Surcharge (MLS)
The MLS is an additional 1% to 1.5% surcharge on higher-income taxpayers who do not hold appropriate private hospital cover with a registered health fund. It applies on top of the 2% Medicare levy and is calculated on 'income for MLS purposes', which is a broader base than taxable income alone.
Income for MLS purposes
Defined in the A New Tax System (Medicare Levy Surcharge, Fringe Benefits) Act 1999. Includes taxable income, reportable fringe benefits, total net investment losses (including negatively geared property), and reportable super contributions. This broader base means you can trigger MLS even if your taxable income alone sits below the threshold.
Avoiding the surcharge
Hold appropriate hospital cover with a registered fund where the excess is $750 or less for singles ($1,500 for couples and families). Ancillary (extras) cover alone does not qualify. The same income tiers determine both MLS rate and the private health insurance rebate percentage, creating a natural incentive to maintain cover above the base tier.
HELP/HECS repayment thresholds
Compulsory HELP repayments are calculated on your minimum repayment income (MRI), which includes taxable income, reportable fringe benefits, reportable super contributions, and certain exempt foreign income. For 2025-26, the first threshold is $67,000. Below this, no compulsory repayment applies. Above it, rates step from 1% to 10% of MRI across indexed bands.
Effective marginal rate impact
HELP repayments add directly to your effective marginal tax rate (EMTR). A sole trader on $80,000 in the 30% income tax band, plus 2% Medicare levy, plus a 3% HELP rate faces a combined EMTR of 35% on each additional dollar. This stacks further if MLS applies. There is no voluntary repayment bonus or discount (abolished 1 January 2017).
Combined effective rates and tax cliffs
The true cost of earning an extra dollar depends on the interaction of income tax, Medicare levy, MLS, LITO phase-out, and HELP. At certain income levels, multiple phase-outs stack, creating effective marginal rates significantly higher than the headline bracket.
Where the cliffs hide
LITO phase-out at $37,500 and $45,000 adds small increments to the effective marginal rate. Medicare low-income thresholds create a kink at $34,028 for singles, where the levy jumps to a full 2% on all income. MLS tier boundaries at $101,000, $118,000, and $158,000 add 1% to 1.5% on total MLS income instantly. HELP band edges add 0.5% to 1% to EMTR at each step. For a sole trader on $105,000 with HELP and no hospital cover, the combined EMTR can exceed 36%.
Other offsets: zone, private health rebate, franking credits, and FITO
Several additional non-refundable offsets may apply depending on your circumstances. The zone tax offset is available to residents of specified remote areas (Zone A, Zone B, and special areas). The private health insurance rebate can be taken as a premium reduction or as a tax offset, income-tested against the same MLS tiers. Franking credits attached to Australian dividends are a tax offset that is effectively refundable for individuals under Subdiv 207-E ITAA 1997, meaning excess credits produce a cash refund. The foreign income tax offset (FITO) prevents double taxation on foreign-source income, with a simplified rule allowing full credit where total foreign tax paid is $1,000 or less, and a cap based on s 770-75 ITAA 1997 mechanics above that.
Statute references
- Income Tax Assessment Act 1997 ss 4-10 and 4-15 (core charging rules and rate tables)
- Medicare Levy Act 1986 (levy, reductions, exemptions)
- A New Tax System (Medicare Levy Surcharge, Fringe Benefits) Act 1999 (MLS definitions and income base)
- Income Tax Assessment Act 1997 Subdiv 207-E (franking credit refundability for individuals)
- Income Tax Assessment Act 1997 s 770-75 (foreign income tax offset limit)
- Income Tax Rates Act, Div 3 Part III (working holiday maker rate schedule)
Frequently asked questions
What changed under the Stage 3 tax cuts that still applies in 2025-26?+
How does the Medicare Levy Surcharge differ from the Medicare levy?+
Is the Low and Middle Income Tax Offset (LMITO) still available?+
At what income does the HELP repayment obligation start for 2025-26?+
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