How brackets really work
Tax brackets are slices. In 2026–27 you pay nothing on the first $18,200, 15% on the next slice, 30% from $45,000, 37% from $135,000 and 45% from $190,000.
Example: a pay rise from $134,500 to $135,500
- $500 is taxed at 30%: $150
- $500 is taxed at 37%: $185
- Medicare levy (2%) on the $1,000: $20
You keep about $645 of the $1,000. Your pay below $135,000 is taxed exactly as before.
Why the myth sticks
More tax comes out of each pay after a rise, and the jump in rate at a threshold is noticeable. But your total take-home pay still goes up. The pay calculator shows how much of every extra $100 you keep.
The real trap: the Medicare levy surcharge
If you don’t have private hospital cover, the Medicare levy surcharge applies once your income for surcharge purposes passes $105,000 for a single person in 2026–27 (higher for families). It’s charged on your whole income, not just the part above the threshold.
Example: a rise from $104,500 to $105,500 adds about $680 after tax and the Medicare levy, but the 1% surcharge on $105,500 costs $1,055. You end up about $375 worse off.
Without hospital cover, the 1% surcharge applies to your whole income once it passes $105,000, so a small rise can leave you with less.
Taking out basic private hospital cover before you cross the threshold avoids it. Salary sacrificing into super won’t help here: those contributions count towards the surcharge income test.
Other things that take a bite
Family Tax Benefit and other payments shrink as family income rises, and HELP repayments take a share of income above the threshold. They reduce what you keep from a rise, but don’t leave you worse off.