Income tax and the Medicare levy with the 2026-27 resident tax rates

The idea

Australian income tax is progressive: each rate applies only to the part of taxable income inside its bracket, so the average rate always sits below the top marginal rate.

What you need

• The ATO resident tax rates for 2026-27: nil to $18 200; 15c for each $1 over $18 200 to $45 000; $4020 plus 30c for each $1 over $45 000 to $135 000; $31 020 plus 37c over $135 000 to $190 000; $51 370 plus 45c over $190 000
• The ATO statement that the Medicare levy is 2 per cent of taxable income, and the 2025-26 rates for comparison
• The ATO income tax estimator for checking, and a spreadsheet

How to do it

1. Check the table's fixed amounts: 15 per cent of ($45 000 - $18 200), then $4020 plus 30 per cent of $90 000.
2. For a test taxable income of $72 000, compute the income tax, the Medicare levy and the income after both.
3. Compute the average rate (tax plus levy as a percentage of income) and compare it with the 30 per cent marginal rate.
4. Compute the tax on $72 000 under the 2025-26 rates and find the change.
5. Build a spreadsheet that computes tax for any income and graph tax against income; describe the gradient of each piece.

What you should see

15 per cent of $26 800 is $4020 and $4020 plus 30 per cent of $90 000 is $31 020, matching the table. On $72 000 the 2026-27 tax is $4020 + 0.30 x $27 000 = $12 120, the Medicare levy is $1440 and $58 440 remains; the average rate is 18.83 per cent against a marginal rate of 30 per cent. Under the 2025-26 rates the tax was $12 388, so the change to 15c in the lowest taxed bracket saves $268. These figures ignore tax offsets and Medicare levy reductions, which the ATO estimator applies. The graph of tax against income is piecewise linear with gradients 0, 0.15, 0.30, 0.37 and 0.45. The learner knows it worked when the spreadsheet reproduces the table's fixed amounts at every bracket boundary.

What changes

This activity lists no variables to change, measure and keep the same.

Common misconceptions

Each of these ideas is wrong, and the activity is a chance to test it.

• Moving into a higher bracket makes all income taxed at the higher rate; only the dollars above the threshold are.
• Someone earning $72 000 pays 30 per cent of it in tax; the average rate including the levy is 18.83 per cent.

Safety card

Curriculum references

The NSW syllabus outcomes and Australian Curriculum v9 codes this activity supports. They are references, not a verified or complete curriculum alignment.

• Mathematics Standard 11–12 Syllabus (2024), Year 11 focus area Earning money; Year 11 taught from Term 1 2026, Year 12 from Term 4 2026, first HSC examination 2027 (the 2017 syllabus is still taught to Year 12 until then); page read 2026-09-22MST-11-03
• Australian Curriculum v9No Australian Curriculum v9 code is listed.

Sources

The pages the author read to write this activity.

1. curriculum.nsw.edu.au/learning-areas/mathematics/mathematics-standard-11-12-2024/content/year-11/faacdf9b3d
2. www.ato.gov.au/tax-rates-and-codes/tax-rates-australian-residents
3. www.ato.gov.au/individuals-and-families/medicare-and-private-health-insurance/medicare-levy/what-is-the-medicare-levy
4. www.ato.gov.au/calculators-and-tools/income-tax-estimator