How Much Tax Will I Pay in Australia? PAYG Tax Explained (2026)

Most Australians never choose how they pay income tax. Your employer withholds it from every pay cycle and sends it to the ATO on your behalf. That system is called PAYG -- Pay As You Go withholding. This guide breaks down exactly how it works, what the current tax brackets are, and how to calculate your total tax bill using real numbers.

This is for Australian tax residents earning employment income (salary and wages) who want to understand what they actually owe -- before lodging their return.

Key takeaways

• PAYG is not a separate tax. It is the mechanism your employer uses to collect income tax from your pay.
• FY2024-25 uses Stage 3 tax brackets: the two middle rates are 16% and 30%.
• On a $95,000 salary, income tax is $19,288. Add Medicare Levy (2%) for a total of $21,188.
• Medicare Levy adds 2% on top of your tax. Most people pay it.
• The Low Income Tax Offset (LITO) reduces tax by up to $700 for incomes under $66,667.
• Capital gains, dividends, rental income, and interest all count as taxable income and push you into higher brackets.

What is PAYG?

PAYG stands for Pay As You Go. It is not a separate tax -- it is the collection mechanism the ATO uses to ensure you do not get hit with a massive tax bill at the end of the financial year.

Your employer calculates how much income tax you should owe based on your annual salary (and your tax file number declaration), then withholds that amount from each pay and remits it to the ATO. At tax time, you reconcile: if too much was withheld, you get a refund. If too little, you owe the difference.

PAYG also applies to other income sources through PAYG instalments, where the ATO asks you to make quarterly payments if you earn significant investment income, business income, or capital gains. But for most salary earners, PAYG withholding from your employer covers the bulk of it.

FY2024-25 tax brackets (Stage 3 rates)

The Stage 3 tax cuts took effect on 1 July 2024. These brackets apply to FY2024-25 and remain the same for FY2025-26.

These are marginal rates. You do not pay 30% on your entire income if you earn $100,000. You pay 0% on the first $18,200, then 16% on the next $26,800, then 30% on the remaining $55,000. That is how progressive taxation works, and it is the single most misunderstood concept in Australian personal finance.

Worked example: $95,000 salary

The ATO's published tax tables state that on incomes between $45,001 and $135,000, the tax is "$4,288 plus 30 cents for each $1 over $45,000."

Verification: $4,288 + ($95,000 - $45,000) x 0.30 = $4,288 + $15,000 = $19,288.

But there is one more thing. Add the Medicare Levy of 2%:

$95,000 x 0.02 = $1,900

Total tax including Medicare Levy (but before any offsets): $19,288 + $1,900 = $21,188.

After applying the Low Income Tax Offset (LITO) -- which phases out to zero at $66,667 -- someone on $95,000 gets no LITO benefit. Their total liability is $21,188.

For a cleaner comparison: on $95,000, your effective tax rate is about 22.3% including Medicare Levy.

Medicare Levy

The Medicare Levy is 2% of your taxable income. It funds Australia's public health system and applies to most taxpayers on top of the income tax calculated from the brackets above.

Low-income thresholds for FY2024-25:

• Individuals: no Medicare Levy if taxable income is $26,000 or below. Reduced levy between $26,001 and $32,500.
• Families: threshold is $43,846 (plus $4,027 per dependent child).

If your taxable income is above these thresholds -- and it almost certainly is if you are reading an income tax guide -- you pay the full 2%.

Medicare Levy Surcharge

The Medicare Levy Surcharge (MLS) is an additional charge on top of the standard 2% Medicare Levy. It applies if you do not have an appropriate level of private hospital cover and your income exceeds certain thresholds.

Family thresholds are double these amounts (plus $1,500 per dependent child after the first). If your total income is over $93,000, it is often cheaper to hold a basic hospital policy ($1,200-$1,800/year) than to pay 1% or more of your income as surcharge.

HELP/HECS repayment thresholds

If you have a HELP, HECS-HELP, VET Student Loan, or similar government study debt, you make compulsory repayments through the tax system once your repayment income exceeds the minimum threshold.

For FY2024-25, the minimum repayment threshold is $54,435. Below that, you repay nothing. Above it, the repayment rate starts at 1% and increases in steps up to 10% for incomes over $151,201.

These repayments are not a tax -- they reduce your loan balance. But they are withheld from your pay alongside PAYG and Medicare Levy, so they absolutely affect your take-home pay. On a $95,000 salary, the HELP repayment rate is 5%, meaning $4,750 per year withheld on top of income tax and Medicare Levy.

What counts as taxable income

Your PAYG withholding covers salary and wages, but your total taxable income at the end of the financial year includes all assessable income from any source.

Common sources of taxable income:

• Salary and wages -- the obvious one, reported on your income statement.
• Interest -- from savings accounts, term deposits. Banks report this to the ATO.
• Dividends -- including franking credits. Franked dividends gross up your income but also give you a tax offset.
• Rental income -- net rental income after deductible expenses (mortgage interest, depreciation, repairs).
• Capital gains -- from selling shares, ETFs, crypto, or property. The net capital gain after discounts is added to your taxable income.
• Foreign income -- employment income, pensions, or investment income from overseas sources.
• Government payments -- JobSeeker, parenting payments, and similar (some are tax-free, some are not).

All of these stack on top of each other. If you earn $85,000 in salary and realise $15,000 in capital gains, your taxable income is $100,000.

Tax offsets: the Low Income Tax Offset (LITO)

Tax offsets (also called rebates) directly reduce the amount of tax you owe. They are not deductions -- they do not reduce your taxable income, they reduce the tax payable.

If you earn $50,000, your LITO is: $700 - ($50,000 - $45,000) x 0.05 = $700 - $250 = $450.

LITO is automatically applied when you lodge your tax return -- you do not need to claim it separately.

How capital gains add to your tax

Capital gains are not taxed separately. The net capital gain for the financial year is added to your other taxable income and taxed at your marginal rate.

For example: you earn $90,000 in salary and sell shares for a $20,000 gain after the 50% discount. That $10,000 net capital gain pushes your taxable income to $100,000. The extra $10,000 is taxed at your marginal rate of 30%, costing you $3,000 in additional tax.

This interaction between PAYG income and capital gains is why knowing your marginal rate matters. For a full breakdown of how CGT is calculated, read our guide to CGT on shares in Australia.

Common mistakes

1. Forgetting Medicare Levy. The ATO tax brackets do not include the 2% Medicare Levy. When someone says "I'm in the 30% bracket," their effective rate is actually 32% once Medicare is included.

2. Not accounting for HELP repayments. HELP repayments are not optional once you cross the threshold. They reduce your take-home pay by thousands of dollars per year.

3. Ignoring the Medicare Levy Surcharge. If you earn over $93,000 and do not have private hospital cover, you are paying an extra 1-1.5% on your entire income. A basic hospital policy often costs less than the surcharge.

4. Thinking you pay one rate on your entire income. Marginal rates apply to brackets, not your whole salary. On $95,000, your average tax rate is about 20.3% -- not 30%.

5. Not claiming deductions. Work-related expenses, home office costs, professional development, and income protection insurance premiums all reduce your taxable income.

6. Forgetting investment income. Interest, dividends, and capital gains all add to your taxable income. If you are close to a bracket boundary, investment income can push you into the next marginal rate.

Calculate your full tax picture

Try our free CGT calculator to see how capital gains affect your tax bill.

This guide is for general information only and does not constitute financial or tax advice. Tax brackets shown are FY2024-25 rates for Australian tax residents.