The Tax Cut Lands 1 July. Is Your Payroll Ready?
Every Australian employee earning over $18,200 gets a small tax cut from 1 July 2026. It’s already law, and it lands on the very first pay run of the new financial year.
For employees, it’s good news. For employers, it’s one more thing payroll needs to get right from day one.
What’s Actually Changing
The tax rate that applies to income between $18,201 and $45,000 drops from 16% to 15%. Every other bracket and threshold stays exactly the same.
This is the second stage of tax cuts legislated back in 2024, building on the larger Stage 3 changes that took effect from 1 July 2024. A further cut, down to 14% on the same bracket, is already locked in for 1 July 2027.
What It’s Actually Worth
The number itself is modest. For anyone earning $45,000 or more, the saving works out to around $268 a year, compared to current 2025–26 rates.
That’s a 1 percentage point reduction across a $26,800 slice of income the gap between $18,201 and $45,000. Earn less than that range and the saving scales down accordingly. Earn more than $45,000, and the maximum benefit is capped at that $268 figure, since the cut only applies to that specific bracket.
It’s not a dramatic number on its own. But across an entire workforce, it’s a change every payslip needs to reflect correctly from the first pay run of July.
What This Means for Payroll, Specifically
This is where the employer’s responsibility sits. PAYG withholding tables update to reflect the new rate, and that update needs to apply from the first pay period starting on or after 1 July 2026.
Get this wrong, and one of two things happens. Either you under-withhold, leaving an employee with a tax bill at year-end they weren’t expecting. Or you over-withhold, effectively giving the ATO an interest-free loan of your employees’ money until their tax return catches it up.
Neither outcome is catastrophic, but both create avoidable admin and avoidable employee questions.
What to Check Before Your First July Pay Run
Confirm your payroll software has updated its tax tables. Most major platforms, including Xero and MYOB, update automatically, but it’s worth verifying rather than assuming.
Check the update applies from the correct pay period. The new rate applies to the first pay period starting on or after 1 July 2026, not simply the first payment made in July if that pay period actually started in June.
Don’t manually adjust withholding yourself. Let the software apply the updated rate. Manual overrides are a common source of errors during rate changes.
Spot-check a few payslips after your first July pay run. Compare the withholding amount against the ATO’s published tax tables for a sense check, especially for employees near the $45,000 threshold.
Communicate the change if employees ask. A small increase in take-home pay can prompt questions. Knowing the figure up to $268 a year means you can answer confidently.
Frequently Asked Questions
When does the tax cut actually take effect? From the first pay period starting on or after 1 July 2026.
How much extra will an employee actually take home? Up to $268 a year for anyone earning $45,000 or more. Employees earning less than that see a smaller, proportional saving.
Do I need to do anything manually in payroll? No, provided your payroll software is up to date. The tax tables should update automatically but it’s worth confirming, not assuming.
Is this the only tax rate change for 2026–27? Yes. This is the only legislated rate change taking effect this financial year. The next scheduled cut, to 14%, applies from 1 July 2027.
Get Your Payroll Tax-Time Ready Talk to Edulink
Rate changes, withholding accuracy, and payslip checks are exactly the kind of detail that’s easy to assume is “handled” and costly to discover isn’t.
Edulink Payroll Services charges $750 per employee, per year, covering payroll, compliance, and reporting, for small and medium businesses across greater Sydney and Campbelltown.
Have more employees? Call us for a discounted rate.
📞 Call us today: 04 044 71 816
Edulink Payroll Services | Campbelltown & Greater Sydney | Call 04 044 71 816
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