Income Tax
Income tax in Australia is worked out from taxable income using a table of tax brackets. This NSW Year 9 Core maths subtopic uses a resident tax table to calculate the tax on a year's income, and is Stage 5 Core content under NESA outcome MA5‑FIN‑C‑01.
You will find the right bracket, take off the bottom of the bracket, multiply by the cents in the dollar and add the fixed amount. You will find taxable income by subtracting allowable deductions from gross income, add interest or dividends first, add the Medicare levy, and compare the tax owed with the tax already paid to find a refund or a bill. You will also express tax as a percentage of income and see how much of a pay rise you keep after moving into a higher bracket. It is part of Year 9 Core Earning Money.
Every question with a fully worked solution.
- Income Tax - Video - Income Tax Watch
Theory
Income tax is worked out from a tax table of bands. Find the taxable income, find its band, tax the part above the start of the band, and add the fixed amount. This Year 9 maths page also covers deductions, other income, the Medicare levy, and whether you get a refund or a bill.
Gross income is all the money earned before tax: wages or salary plus any other income, such as bank interest or dividends from shares.
Allowable deductions are work-related costs that can be taken off, such as work travel, tools or union fees. Taxable income is the gross income minus the deductions.
A tax table splits income into bands (brackets). The first part, up to the tax-free threshold of \(18\,200\) dollars, is not taxed. Each higher band is taxed at a higher rate, but only on the income inside that band.
The Medicare levy is an extra charge for the public health system, usually \(2\%\) of taxable income.
Under PAYG (pay as you go), tax is taken from each pay during the year. If more was withheld than you owe, you get a refund. If less, you get a tax bill.
Start with the taxable income:
The tax table used on this page and in the questions:
| Taxable income | Tax payable (2026–27 resident rates) |
|---|---|
| $0 – $18 200 | Nil |
| $18 201 – $45 000 | 15c for each $1 over $18 200 |
| $45 001 – $135 000 | $4020 plus 30c for each $1 over $45 000 |
| $135 001 – $190 000 | $31 020 plus 37c for each $1 over $135 000 |
| $190 001 and over | $51 370 plus 45c for each $1 over $190 000 |
How to work out income tax
- Find the taxable income: add all income, then subtract allowable deductions. For a weekly or fortnightly pay, multiply by \(52\) or \(26\) first.
- Choose the band the taxable income falls in.
- Subtract the start of the band, multiply by the cents in the dollar, and add the fixed amount.
- Finish: add the Medicare levy if asked, then compare with the PAYG tax withheld to find a refund or a bill.
$30 000 is in the second band: 15c for each dollar over $18 200. There is no fixed amount in this band.
| \(\text{over } 18\,200\) | \(=\) | \(30\,000 - 18\,200 = 11\,800\) |
| \(\text{tax}\) | \(=\) | \(0.15 \times 11\,800\) |
| \(\) | \(=\) | \(\mathbf{1770.00}\) |
The tax payable is $1770.00.
$62 000 is in the third band: $4020 plus 30c for each dollar over $45 000.
| \(\text{over } 45\,000\) | \(=\) | \(62\,000 - 45\,000 = 17\,000\) |
| \(0.30 \times 17\,000\) | \(=\) | \(5100\) |
| \(\text{tax}\) | \(=\) | \(4020 + 5100\) |
| \(\) | \(=\) | \(\mathbf{9120.00}\) |
The tax payable is $9120.00.
(i) his taxable income
(ii) his income tax
(iii) his Medicare levy at \(2\%\) of taxable income
(iv) the total.
Add other income to the salary, then take off the deductions.
| \(\text{(i)}\) | \(=\) | \(44\,600 + 900 - 1500\) |
| \(\) | \(=\) | \(\mathbf{44\,000}\) |
| \(\text{(ii) tax}\) | \(=\) | \(0.15 \times (44\,000 - 18\,200)\) |
| \(\) | \(=\) | \(0.15 \times 25\,800\) |
| \(\) | \(=\) | \(\mathbf{3870.00}\) |
| \(\text{(iii) levy}\) | \(=\) | \(0.02 \times 44\,000 = \mathbf{880.00}\) |
| \(\text{(iv) total}\) | \(=\) | \(3870 + 880 = \mathbf{4750.00}\) |
The Medicare levy is a percentage of the whole taxable income, not just the part in one band.
(i) Does she get a refund or a bill, and how much?
(ii) What percentage of her taxable income is her tax, to two decimal places?
(i) $105 000 is in the third band.
| \(\text{over } 45\,000\) | \(=\) | \(105\,000 - 45\,000\) |
| \(\) | \(=\) | \(60\,000\) |
| \(\text{tax}\) | \(=\) | \(4020 + 0.30 \times 60\,000\) |
| \(\) | \(=\) | \(4020 + 18\,000\) |
| \(\) | \(=\) | \(22\,020\) |
| \(\text{withheld} - \text{tax}\) | \(=\) | \(23\,500 - 22\,020\) |
| \(\) | \(=\) | \(1480\) |
More was withheld than she owes, so she gets a refund of $1480.00.
(ii)
| \(\dfrac{22\,020}{105\,000} \times 100\%\) | \(=\) | \(20.971\ldots\%\) |
| \(\) | \(\approx\) | \(\mathbf{20.97\%}\) |
She pays well under \(30\%\) overall, because the lower parts of her income are taxed at lower rates.
Common pitfalls
Frequently asked questions
How do you calculate income tax in Australia?
Find your taxable income, find its band in the tax table, subtract the start of the band, multiply by the cents in the dollar, and add the fixed amount for that band.
What is taxable income?
It is your gross income, including other income such as interest, minus your allowable deductions. The tax is worked out on this amount.
What is the tax-free threshold?
It is the amount of income on which no tax is paid. In the table on this page it is $18 200.
How do you work out the Medicare levy?
Multiply the taxable income by \(2\%\), which is \(0.02\). On a taxable income of $44 000 the levy is $880.
Do you pay more tax on all your income if you move into a higher tax bracket?
No. Only the part of your income inside the higher bracket is taxed at the higher rate. The rest is taxed exactly as before.