Will a pay rise push you into a higher tax bracket? What you keep in 2026–27

Plenty of people worry that a pay rise will push them into a higher tax bracket and leave them worse off. For income tax, that can't happen. Only the dollars above each threshold are taxed at the higher rate. But there is one real cliff in the system, and it catches people on around $105,000 who don't hold private hospital cover. This guide shows both in dollars for 2026–27.

The 2026–27 tax brackets

From 1 July 2026 the lowest rate fell from 16% to 15%. The ATO's rates for Australian residents in 2026–27 are:

These rates don't include the 2% Medicare levy. The rate cut is worth up to $268 a year compared with 2025–26, for anyone earning $45,000 or more. A further cut, to 14%, is legislated from 1 July 2027.

Why crossing a threshold never costs you overall

Take someone whose salary rises from $130,000 to $140,000. After the $1,000 standard deduction for work-related expenses, their taxable income goes from $129,000 to $139,000. That crosses the $135,000 threshold, so they are now "in the 37% bracket". But only the $4,000 above $135,000 is taxed at 37%. The other $6,000 of the rise is still taxed at 30%.

Their income tax goes from $29,220 to $32,500. Adding the Medicare levy, the $10,000 rise costs $3,480 in tax and they keep $6,520. If the whole $139,000 were taxed at 37%, the tax would be $51,430. That is the myth, and it isn't how the system works.

What you keep from each extra $1,000

The more useful number is how much of the next $1,000 you keep. Below about $66,667 this is a little lower than the bracket suggests. That's because the low income tax offset, worth up to $700, shrinks by 1.5c for each dollar earned between $45,000 and $66,667.

Study loans add to this. Once repayment income passes the threshold, each extra dollar adds 15c or 17c to the compulsory repayment. The figures are in how much HECS you'll repay in 2026–27.

The average rate stays well below the bracket

Because the first dollars are taxed lightly or not at all, the share of total income paid in tax is much lower than the top bracket you reach.

The one real cliff: the Medicare levy surcharge

The Medicare levy surcharge works differently. It applies to people without an appropriate level of private hospital cover, and once income passes a threshold the rate applies to the whole amount, not just the part above it. For a single person in 2026–27:

• $105,000 or less: no surcharge
• $105,001 to $123,000: 1%
• $123,001 to $164,000: 1.25%
• $164,001 or more: 1.5%

So a single person without hospital cover whose salary goes from $106,000 to $107,000 takes their taxable income from $105,000 to $106,000, after the $1,000 standard deduction. They pay $320 more in tax and the levy, plus a $1,060 surcharge. Their take-home pay falls by $380. They need a salary of $107,568 to get back to where they were at $106,000. Crossing into the next tier at $123,001 of income adds another $308 to the surcharge for a single extra dollar.

The family threshold is $210,000 for 2026–27, based on combined income, and rises by $1,500 for each dependent child after the first. Income for surcharge purposes is also wider than taxable income. It adds back reportable fringe benefits, net investment and rental losses, and reportable super contributions. So salary sacrifice into super doesn't lower it. The tax side of salary sacrifice is covered in salary sacrifice into super.

Assumptions behind the numbers

• Tax rates, the low income tax offset and the surcharge thresholds are the ATO's published figures for 2026–27.
• Examples are for an Australian resident for the full year, with salary as the only income. Taxable income is salary less the $1,000 standard deduction for work-related expenses, which applies automatically to employees from 2026–27. No other deductions are claimed.
• The Medicare levy is 2% of taxable income. All examples are above the range where the low-income reduction applies. The surcharge thresholds are in income for surcharge purposes, which for these examples equals taxable income.
• Tables assume appropriate private hospital cover is held, so no surcharge, except in the surcharge example. That example is for a single person with no dependants.
• Study loan repayments and other offsets are left out, except where stated. Amounts are rounded to the nearest dollar.
• The new working Australians tax offset, worth up to $250, starts in 2027–28 and is not included. Your own position may differ, and the ATO or a registered tax agent can confirm it.