$18,200. That is the amount every Australian resident can earn in a financial year without paying a single cent of income tax. For the 2024–25 and 2025–26 income years, this figure stays at $18,200 — unchanged since 2012–13. This article covers exactly how it works, who can claim it, common traps to avoid, and what is changing in the years ahead.

What Is the Tax Free Threshold?

Tax free threshold: The amount of annual income an Australian resident for tax purposes can earn before any income tax applies. For 2024–25 and 2025–26, this amount is $18,200.

Think of it as the government’s acknowledgement that everyone needs a base level of income just to get by — that first slice of earnings is yours, tax-free.

Once your taxable income exceeds $18,200, you start paying tax at your applicable marginal rate on every dollar above that point. The threshold itself never disappears — it just means the first $18,200 of anyone’s income is always at a 0% rate.

This applies automatically to all Australian residents. You do not earn it or apply for it separately — you simply claim it when starting a new job.

Is the Tax Free Threshold Changing in 2025?

No. The tax free threshold remains at $18,200 for both the 2024–25 and 2025–26 financial years.

What has changed around it: the Stage 3 tax cuts, which took effect from 1 July 2024, reduced the rates on income above the threshold. The 19% rate on income from $18,201–$45,000 dropped to 16%, and the 32.5% rate on $45,001–$120,000 was cut to 30%, with the top of that bracket extended to $135,000.

Looking further ahead, the lowest rate drops again:

• 2026–27: 16% → 15% on income from $18,201–$45,000
• 2027–28: 15% → 14% on the same bracket

So while the threshold itself stays at $18,200, taxpayers above it are progressively keeping more of their income in coming years.

2025–26 Individual Income Tax Brackets

Here are the current tax rates for Australian residents. These apply to income above the tax free threshold:

Taxable Income	Tax Payable
$0 – $18,200	Nil (tax free threshold)
$18,201 – $45,000	16c for each $1 over $18,200
$45,001 – $135,000	$4,288 + 30c for each $1 over $45,000
$135,001 – $190,000	$31,288 + 37c for each $1 over $135,000
$190,001 and over	$51,638 + 45c for each $1 over $190,000

Source: ATO — Tax rates for Australian residents

These rates do not include the 2% Medicare levy, which most Australian residents pay on top.

Worked example — $75,000 income in 2025–26:

• First $18,200: $0 (tax free)
• $18,201 to $45,000 ($26,800 @ 16%): $4,288
• $45,001 to $75,000 ($30,000 @ 30%): $9,000
• Total income tax: $13,288
• Plus 2% Medicare levy: $1,500
• Total tax and Medicare levy: $14,788

Why Hasn’t the Tax Free Threshold Changed Since 2012?

This is one of the most-asked questions in Australian personal finance forums. The threshold was raised from $6,000 to $18,200 in the 2012–13 financial year — a significant jump of 203% — and has not moved since.

The result is bracket creep: as wages grow with inflation, more Australians pay a higher effective tax rate each year without any formal rate increase. The government collects more tax revenue passively.

To put it in context: if the $18,200 threshold had been indexed to the Consumer Price Index from 2012, it would sit around $24,000–$26,000 today based on cumulative CPI growth.

The Stage 3 tax cuts addressed bracket creep in the middle brackets (reducing rates from 19% to 16% and 32.5% to 30%), but the base threshold itself remains frozen.

Who Can Claim the Tax Free Threshold?

Australian Residents — Full Year

To claim the full $18,200, you must be an Australian resident for tax purposes for the entire financial year (1 July to 30 June).

Australian tax residency is assessed by the ATO based on factors including:

• Your permanent home location
• Intention to reside in Australia
• Family ties and employment connections
• Duration of stay

If you live and work in Australia permanently, you are almost certainly a resident for tax purposes.

Part-Year Residents — Pro-Rata Threshold

If you arrived in or departed from Australia during the financial year, you are entitled to a reduced, pro-rata threshold:

Formula:

$13,464 + ($4,736 × months you were a resident ÷ 12)

Example: You became a resident on 1 January 2026 (6 months into the 2025–26 year):

$13,464 + ($4,736 × 6 ÷ 12) = $15,832

You would only pay tax on income above $15,832 for that year.

Non-Residents

Non-residents for tax purposes are not entitled to the tax free threshold. Tax applies from the first dollar earned in Australia:

Taxable Income	Non-Resident Rate
$0 – $135,000	30%
$135,001 – $190,000	$40,500 + 37% of excess over $135,000
$190,001 and over	$60,850 + 45% of excess over $190,000

Non-residents also do not pay the Medicare levy.

Working Holiday Makers

If you are on a working holiday maker visa (subclass 417 or 462), special rates apply. You do not receive the tax free threshold. Instead, a flat rate of 15% applies on income up to $45,000, with standard resident rates above that.

Temporary Residents

Temporary visa holders who live and work in Australia are generally treated as Australian residents for tax purposes. This means you can claim the full $18,200 tax free threshold against your Australian-sourced income.

Under 18s

If you are under 18 and earning employment income (wages from a job), you can claim the tax free threshold — the same rules apply as for adults.

The important exception: unearned income for minors (interest, dividends, trust distributions) is taxed at penalty rates if it exceeds $416. This is an ATO integrity measure designed to prevent income splitting with children.

How to Claim the Tax Free Threshold

The process is simple. When you start a new job, your employer will ask you to complete a Tax File Number (TFN) Declaration form.

Question 9 on the form asks: “Do you want to claim the tax-free threshold from this payer?”

• Answer Yes for your main (highest-paying) job
• Answer No for any second or additional jobs

That is it. Your employer will adjust the amount of tax withheld from your pay accordingly. You are not applying for anything special — you are simply telling your employer’s payroll system how much tax to deduct.

What if you forgot to claim it when you started? Your employer withholds more tax than necessary. But you will still receive the full benefit of the threshold when you lodge your tax return. The ATO will calculate your actual tax liability and refund any overpaid tax.

You can also submit an updated TFN Declaration to your employer at any time to adjust future withholding.

Checklist: Claiming Correctly

• ☑ Complete TFN Declaration when starting each new job
• ☑ Claim the threshold from your primary (highest-paying) employer only
• ☑ Answer No to threshold on second or additional jobs
• ☑ When you change jobs, claim the threshold from your new employer
• ☑ If income is below $18,200 and tax was withheld, lodge a return to get the refund

Multiple Jobs: The Most Common Trap

This is where most confusion — and most tax bills — arise.

If you work two jobs simultaneously and claim the tax free threshold from both employers, neither employer knows you have another job. Each calculates your PAYG withholding as if you are earning that amount only, for the entire year.

The result: you effectively receive the $18,200 threshold twice, which means you underpay tax throughout the year and will face a bill when you lodge your return.

Real example: You earn $34,000 from Job A and $20,000 from Job B — total $54,000.

Scenario	Annual Tax Withheld	Actual Tax Owed	Outcome
Threshold on Job A only (correct)	~$9,900	~$9,900	Roughly square at tax time
Threshold on both jobs (wrong)	~$6,100	~$9,900	~$3,800 tax debt

The correct approach: claim the threshold from your highest-paying job. For all other jobs, answer No on the TFN Declaration.

Can you deliberately claim both to have more cash flow during the year? Some people do this and set aside the tax debt. Technically you are not complying with ATO rules. The ATO will collect the tax when you lodge your return, and in some cases may charge interest on unpaid PAYG debts.

For help managing payroll obligations across multiple employees or income sources, the Box Advisory Services PAYG guide for employees covers the mechanics in detail.

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What About Centrelink and Government Payments?

Some Centrelink payments are classified as taxable income and interact with the threshold:

• JobSeeker Payment — taxable
• Youth Allowance — partially taxable
• Age Pension — taxable
• Parenting Payment — taxable

If you receive these payments, they count toward your $18,200 threshold alongside any employment income. Centrelink can apply a Tax Withholding Variation so tax is deducted at the source, or you may have a tax bill at year end if insufficient tax is withheld.

Payments that are NOT taxable and do not affect the threshold:

• Family Tax Benefit (Part A and B)
• Child Care Subsidy
• Pandemic-related support payments (where specifically declared tax-free)

The Low Income Tax Offset (LITO) — Raising the Effective Tax-Free Point

The Low Income Tax Offset works alongside the threshold to further reduce tax for low-income earners.

For 2025–26:

• Maximum LITO: $700 (for income up to $37,500)
• Phases out between $37,500 and $66,667

When you combine the $18,200 tax free threshold with the full $700 LITO, the effective point at which you begin paying net income tax rises to approximately $22,575 (before the Medicare levy).

LITO is applied automatically when you lodge your tax return. You do not claim it separately.

Note: The Low and Middle Income Tax Offset (LMITO) — which provided up to $1,500 for incomes up to $126,000 — ended after the 2021–22 financial year. It is no longer available.

Do I Need to Lodge a Tax Return If I Earn Under $18,200?

It depends.

Yes, you must lodge a return if:

• Tax was withheld from your pay during the year (you need to claim it back)
• You earned taxable investment income (interest, dividends, capital gains)
• You received taxable government payments
• You have a HELP/HECS debt
• Centrelink requires a return for your income support

You may not need to lodge if:

• Your only income was under $18,200 AND no tax was withheld AND you have no other reporting requirements

In this second case, you should submit a Non-Lodgement Advice to the ATO — a simple online notification through myGov that confirms you are not required to lodge. This prevents the ATO from issuing overdue notices.

If you are a sole trader, you must lodge a return regardless of your income level — even if it is below $18,200. Understanding your obligations is covered in the Box Advisory Services tax obligations guide for contractors and small businesses.

Why Am I Still Getting Tax Withheld When I Earn Under $18,200?

This confuses a lot of people, and it is a completely legitimate question.

Your employer’s payroll software does not know what you will earn for the full year — it can only project forward based on each pay. If you earn $600 this week, the system calculates tax based on an assumed annual income of $31,200 (i.e., $600 × 52 weeks).

If your actual total annual income ends up below $18,200, the ATO will refund every dollar of that withheld tax when you lodge your return.

The weekly equivalent of the threshold is roughly $350 per week. If you earn more than $350 in any given week and have claimed the threshold, you will have some tax withheld — but once your annual return is done, it is reconciled.

Superannuation and the Tax Free Threshold

The tax free threshold applies to your taxable income — it does not cover employer superannuation contributions.

From 1 July 2025, the Superannuation Guarantee rate increased to 12%. This is the legislated final step in the SG rate increases, meaning employers must now contribute 12% of eligible employees’ ordinary time earnings to super.

Employer contributions are taxed at 15% within your super fund (or 30% for high earners with income plus concessional contributions above $250,000 under Division 293 rules) — separately from your personal income tax calculation.

For sole traders managing their own super, the Box Advisory Services guide to sole trader superannuation explains how to claim a tax deduction for voluntary contributions.

Tax Deductions: Lowering Your Taxable Income Below $18,200

Even if your gross income exceeds the $18,200 threshold, tax deductions reduce your taxable income — potentially bringing it closer to or below the threshold.

Common deductions that reduce taxable income:

• Work-related expenses — uniforms, tools, work-from-home costs, professional subscriptions
• Self-education — directly related to your current employment
• Tax agent fees — the cost of preparing and lodging this year’s return
• Income protection insurance — premiums paid outside of super
• Charitable donations — to registered DGR recipients

How deductions work: If you earn $22,000 but claim $5,000 in legitimate work-related deductions, your taxable income falls to $17,000 — below the $18,200 threshold — and your income tax is zero.

For a full breakdown of what you can and cannot claim, the Box Advisory Services guide to tax deductions in Australia is a practical starting point.

Reducing Your Tax Bill Further

If your income is above $18,200, there are legal strategies beyond the standard threshold that reduce what you owe:

Superannuation contributions remain one of the most effective tools. Concessional (before-tax) contributions are taxed at just 15% inside your super fund — far below most people’s marginal rate. The cap for 2025–26 is $30,000 (including employer contributions).

Income splitting and business structures — if you operate a business through a trust or company, there may be strategies to distribute income more efficiently. These are complex and require personalised advice. The Box Advisory guide on tax minimisation strategies for high-income earners covers the key options.

Timing of deductions — prepaying deductible expenses before 30 June can bring a deduction into the current year.

Action Checklist for 2025–26

For Employees:

1. Check your TFN Declaration status — Confirm you have claimed the threshold from your primary employer only
2. Review your payslips — Is the tax withheld roughly in line with your income level?
3. Second job? — Ensure your second employer has you listed as not claiming the threshold
4. Super — Confirm your employer is paying 12% SG from 1 July 2025
5. Lodge on time — Tax returns for 2024–25 are due by 31 October 2025 (or later if using a registered tax agent)

For Employers:

1. Apply 12% SG rate from 1 July 2025 for all eligible employees
2. Update payroll systems to use the correct 2025–26 ATO tax tables
3. TFN Declarations — Ensure new employees complete a form within 14 days of starting (otherwise you must withhold at the top rate of 45% + Medicare levy)
4. Check the weekly tax table guide for accurate PAYG withholding amounts

For Small Business Owners:

1. Lodging your own return — Sole traders must lodge even if income is under $18,200
2. PAYG instalments — If you received an instalment notice from the ATO, keep up with quarterly payments
3. Instant asset write-off — The $20,000 threshold has been extended to 30 June 2026 for eligible businesses

For personalised advice, Box Advisory Services individual tax return service can help you get the most from your return and avoid end-of-year surprises.

Frequently Asked Questions (FAQs)

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Key Takeaways

• The tax free threshold for 2025 is $18,200 — the same as it has been since 2012–13.
• Stage 3 tax cuts (from 1 July 2024) reduced the rates above the threshold: 19% → 16% (to $45,000) and 32.5% → 30% (to $135,000). Further cuts come in 2026–27 and 2027–28.
• Claim the threshold from one employer only — your main, highest-paying job. All other jobs: answer No on the TFN Declaration.
• Part-year residents get a pro-rata threshold: $13,464 + ($4,736 × months as resident ÷ 12).
• Non-residents receive no threshold; tax applies at 30% from the first dollar.
• Working holiday makers (visa 417/462) pay a flat 15% up to $45,000 — no threshold.
• LITO raises the effective tax-free point to ~$22,575 for eligible earners, applied automatically at lodgement.
• Super Guarantee increased to 12% from 1 July 2025, taxed separately at 15% within your fund.
• Lodge your tax return even if income is below the threshold — you may have a refund waiting.

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Disclaimer: This article provides general information only and is accurate as at [DATE]. Tax laws change regularly. For advice specific to your circumstances, contact Box Advisory Services or a registered tax agent.