If you’re an Australian resident for tax purposes, the first $18,200 you earn in a financial year is tax-free, and income tax only kicks in on what you earn above that. The $18,200 tax-free threshold in Australia applies for the full 2025–26 year, and if your total taxable income stays under it, you owe no income tax at all.1Australian Taxation Office. Tax Rates – Australian Resident
How Tax Works on Income Above $18,200
Australia taxes income in slices. The threshold is the bottom slice at zero, and each slice above it is taxed at a progressively higher rate. For 2025–26, the resident rates are:
- $0 to $18,200: no tax
- $18,201 to $45,000: 16 cents for each dollar over $18,200
- $45,001 to $135,000: $4,288 plus 30 cents for each dollar over $45,000
- $135,001 to $190,000: $31,288 plus 37 cents for each dollar over $135,000
- $190,001 and over: $51,638 plus 45 cents for each dollar over $190,000
These figures cover income tax only. The Medicare levy sits on top and is discussed further down.1Australian Taxation Office. Tax Rates – Australian Resident
A worked example makes the mechanics clearer. If you earn $50,000, the first $18,200 is tax-free. The next $26,800 sits in the 16-cent bracket and produces $4,288 in tax. The last $5,000 sits in the 30-cent bracket and adds $1,500. Your income tax is $5,788 before the Medicare levy and any offsets. You never pay 30 cents on the whole $50,000, only on the part sitting in that bracket.
Who Qualifies for the Tax-Free Threshold
Only individuals classified as Australian residents for tax purposes can claim the threshold. That classification is separate from citizenship or visa status. You can be an Australian resident for tax purposes without being a citizen, and you can be a citizen without being a resident for tax purposes.
The ATO uses four tests to decide: the resides test (whether you actually live here based on presence, intentions, family and financial ties), the domicile test (whether your permanent home is in Australia), the 183-day test (physical presence of 183 days or more in a financial year), and the superannuation test (which covers certain Commonwealth employees posted overseas). You only need to satisfy one test to be treated as a resident.2Australian Taxation Office. Residency Tests
If you don’t meet any of them, you’re a foreign resident for tax purposes and the threshold does not apply. Foreign residents pay tax on Australian-sourced income from the first dollar, at 30 cents per dollar up to $135,000.3Australian Taxation Office. Tax Rates – Foreign Resident
Claiming the Threshold Through Your Employer
To have the threshold factored into your regular pay, complete a Tax File Number (TFN) declaration when you start a new job. Question 9 asks whether you want to claim the tax-free threshold from that employer.4Australian Taxation Office. Paper TFN Declaration Form for Payees If you tick yes, your employer adjusts withholding so the first $18,200 of your annual earnings attracts no tax.
If you don’t provide a TFN declaration at all, your employer must withhold at the top marginal rate plus the Medicare levy from every payment, which currently works out to 47 cents per dollar.5Australian Taxation Office. Tax File Number and Withholding Declarations You’d eventually get the over-withheld amount back at tax time, but it means much less cash in hand through the year.
What to Do If You Have More Than One Job
If you hold two or more jobs at the same time, claim the threshold from only one employer, usually the one paying you the most. Tell the others not to apply it, so they withhold at the higher rate.6Australian Taxation Office. Multiple Jobs or Change of Job
Claiming it from two employers at once is one of the most common tax mistakes. Each employer reduces withholding as though you earn under $18,200 with them alone, but your combined income can sit well inside a taxable bracket. The shortfall then shows up at tax time, sometimes as a bill of hundreds or thousands of dollars. You don’t lose the threshold by having one employer withhold more. You just match your withholding to reality instead of facing a lump sum later.
There’s one exception. If your total income from all sources will stay below $18,200 for the year, you can claim the threshold from more than one employer without creating a shortfall.7Australian Taxation Office. Tax File Number Declaration Form NAT 3092
Part-Year Residents Get a Reduced Threshold
If you became an Australian resident partway through a financial year, or stopped being one during the year, you get a reduced threshold rather than the full $18,200. The ATO doesn’t simply prorate it by month. The formula has two parts:8Australian Taxation Office. Tax-Free Threshold for Newcomers to Australia
- A flat base of $13,464 regardless of how many months you were a resident.
- An additional $4,736 divided by 12 and multiplied by the number of months you were resident, counting the month you arrived or the month you left.
For instance, if you arrived on 15 January and were a resident for the last six months of the financial year, your adjusted threshold is $13,464 + ($4,736 ÷ 12 × 6) = $15,832. You’d pay no tax on the first $15,832 of your Australian income for that year.9Australian Taxation Office. Living Overseas and Becoming a Foreign Tax-Resident The same formula applies in reverse if you leave Australia permanently, counting the months from July through the month of departure.
The Low Income Tax Offset Pushes the Effective Threshold Higher
On top of the $18,200 threshold, the Low Income Tax Offset (LITO) can wipe out some or all of the tax on income just above it. You don’t claim LITO on a form. The ATO applies it automatically when you lodge your return, and it works as a direct reduction of tax payable rather than a reduction of taxable income.10Australian Taxation Office. Low Income Tax Offset
- Taxable income $37,500 or less: maximum offset of $700
- $37,501 to $45,000: $700 minus 5 cents for each dollar over $37,500
- $45,001 to $66,667: $325 minus 1.5 cents for each dollar over $45,000
In practice, someone earning around $21,884 or less pays no income tax at all, because the offset cancels out the small amount of tax generated in the 16-cent bracket. That makes the effective tax-free point slightly higher than $18,200 for low earners. LITO phases out entirely at $66,667.
Don’t Forget the Medicare Levy
The brackets above cover income tax only. Most Australian residents also pay a Medicare levy of 2% on their entire taxable income to fund the public health system. The levy is calculated on your total taxable income, not just the portion above $18,200, so it can catch people who budget from the income tax tables alone.
Low-income earners may pay a reduced levy or none. For 2024–25, single taxpayers with taxable income at or below $27,222 were exempt, with a reduced rate between $27,222 and $34,027. Higher thresholds applied for seniors and pensioners eligible for the relevant offset.11Australian Taxation Office. Medicare Levy Reduction for Low-Income Earners The ATO updates these figures each year, so check current thresholds when preparing your return.
Lodging Your Tax Return
If you lodge your own return, the deadline is 31 October after the end of the financial year. Registered tax agents can generally lodge later under extended schedules, but you need to be on their books before 31 October.12Australian Taxation Office. Preparing Your Tax Return
If You Earned Under $18,200
If your total income for the year was below the threshold and your employer still withheld tax because you didn’t claim the threshold on your TFN declaration, you’re entitled to a full refund of what was withheld. You need to lodge a return to get it. The ATO doesn’t refund it automatically.13Australian Taxation Office. Lodge a Non-Lodgment Advice
If no tax was withheld and your income stayed under $18,200, you can lodge a non-lodgment advice instead of a full return, letting the ATO know you had no tax obligation. Some situations still require a full return even below the threshold, such as receiving certain government payments like Family Tax Benefit, holding an active ABN, or having a child support assessment in place.13Australian Taxation Office. Lodge a Non-Lodgment Advice
If You Earned Over $18,200
If your income was above the threshold, you must lodge a return regardless of whether the right amount of tax was withheld through the year. The return reconciles your actual income, deductions, and offsets against what was already withheld. If your employer withheld too much, you get a refund. If they withheld too little, perhaps because you claimed the threshold from two employers, you’ll owe the difference. Keeping a rough tally of your combined income during the year is the simplest way to avoid a surprise when the return is processed.