Low Income Tax Offset Calculator (LITO)

Two worked amounts show both tapers. On $40,000 the offset is $700 less 5c times $2,500, which is $575. On $60,000 it is $325 less 1.5c times $15,000, which is $100. Between those two incomes the offset falls by $475 while the income itself rises by $20,000.

If you want the full picture of how the brackets, the offset and the levy stack up on a salary, the income tax calculator runs all three at once, and how income tax works in Australia explains the order the ATO applies them in.

Your marginal rate is what the next dollar costs you. The bracket table says 15% up to $45,000 and 30% above it. That is only true once the offset has gone. While LITO is being withdrawn, each extra dollar is taxed at the bracket rate and shrinks your offset, so it costs you both.

Headline rates from marginalRate() on the 2026-27 resident scale; withdrawal rates read directly off the LITO scale by taking one more dollar of income. The effect on marginal rates is confirmed in the ATO low income tax offset guidance. The Medicare levy column assumes the full 2% applies.

The jump is real and it is easy to miss. In the $37,501 to $45,000 range the bracket rate is only 15%, but every extra dollar also removes 5c of offset, so the true cost is 20% before the levy. In the $45,001 to $66,667 range it is 30% plus 1.5c, or 31.5%.

Computed by adding $1,000 to the taxable income and re-running both the tax scale and the offset scale. Income tax only, before the Medicare levy.

None of this makes a pay rise a bad thing. Earning $1 more never leaves you worse off, because the offset is withdrawn more slowly than the extra income arrives. It does explain why a raise from $40,000 to $50,000 feels thinner than the bracket table promised. The difference between the rate on your next dollar and the rate you actually paid across the year is set out in marginal vs average tax rate.

One more layer sits underneath this for the lowest incomes. The Medicare levy itself phases in between $28,011 and $35,013 of taxable income at 10c per $1, so inside that narrow band the total effective marginal rate is higher again. The ATO had not published the 2026-27 low-income levy thresholds as at 19 July 2026, so those two figures are the 2025-26 amounts carried forward, and this page will be updated when the new ones are released.

There is no LITO label on the tax return. The ATO works the offset out from the taxable income on your assessment and subtracts it before telling you what you owe. Tax agents do not need to ask for it either. If you lodge a return and your taxable income is $66,667 or less, the offset is in your assessment.

You will see it on your notice of assessment rather than on your payslip. Employer withholding schedules already build a share of LITO into the amounts taken out each payday, which is part of why the tax on your payslip does not match a simple bracket calculation. The final reconciliation happens at assessment.

If you are not required to lodge a tax return at all, there is nothing to claim. An offset only has something to reduce when there is income tax to reduce, and below about $22,866 there is none.

A deduction comes off your income before the tax is worked out, so it saves you your marginal rate multiplied by the deduction. An offset comes off the tax itself, so it saves you the full amount, provided you owe at least that much tax. The table below runs the same $700 through both routes.

Deduction column computed by lowering taxable income by $700 and re-running the tax scale, the LITO scale and the Medicare levy, so it includes the extra offset that a lower income restores. Income tax and Medicare levy combined.

The $40,000 row shows the effective marginal rate story from the other side. A $700 deduction saves $154 there, which is 22% of the amount, because at that income each dollar carries 15% tax, 5c of LITO withdrawal and 2% Medicare levy. That is the new $1,000 standard work deduction working harder than the bracket table suggests.

Sources: ATO, Low income tax offset; ATO, Personal income tax, new tax cuts for every Australian taxpayer; ATO, Standard deduction for work-related expenses. LITO amounts computed from the 2026-27 scale.

• ATO, Low income tax offset (maximum $700 for taxable income to $66,667, the 5c and 1.5c withdrawal steps, non-refundable, applied automatically after you lodge), last updated 8 June 2026: ato.gov.au low income tax offset
• ATO, Tax rates for Australian residents (the 2026-27 resident scale the offset is subtracted from, and confirmation that the bracket rates exclude the Medicare levy).
• ATO, Personal income tax, new tax cuts for every Australian taxpayer (first marginal rate cut from 16% to 15% from 1 July 2026), last updated 13 May 2026.
• ATO, Standard deduction for work-related expenses (the new $1,000 standard deduction, first applying to the 2026-27 return), last updated 26 June 2026.
• ATO, Medicare levy and the low-income reduction (2% of taxable income, with a phase-in between the low-income thresholds). The 2026-27 low-income thresholds were not published as at 19 July 2026, so the 2025-26 figures of $28,011 and $35,013 are carried forward and flagged wherever they appear.

Every LITO amount, tax amount and effective rate on this page is computed at render time by this site’s 2026-27 tax engine, so a change to the offset scale updates the whole page at once. See the methodology page for how figures are verified. Last verified 26 July 2026.

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