How Australia's PAYG Tax System Works
Australia uses a Pay-As-You-Go (PAYG) withholding system where employers deduct income tax from each paycheck. The tax rates are progressive, meaning higher income is taxed at higher marginal rates. For the 2025-2026 financial year, tax brackets range from 0% on the tax-free threshold up to 45% for income over $190,000.
Medicare Levy and Superannuation
All Australian residents pay a Medicare levy of 2% of taxable income to fund the public healthcare system. High-income earners without private hospital cover may pay an additional Medicare Levy Surcharge. Superannuation Guarantee (SG) contributions are made by employers at 11.5% of ordinary earnings, building retirement savings over time.
Salary Packaging and Take-Home Pay
Salary packaging arrangements, such as salary sacrificing into super or novated car leases, can reduce your taxable income and increase net take-home pay. Understanding how PAYG withholding, Medicare, and super interact helps you make informed financial decisions and plan your budget effectively.