Published: 4 March 2026

Low Income Tax Offset (LITO) Calculator: How Much Can You Claim in 2025-26?

If you're earning a modest income in Australia, you might be entitled to the Low Income Tax Offset (LITO) — a government benefit designed to reduce the amount of tax you pay. Understanding how LITO works can help you better estimate your take-home pay and ensure you're not missing out on valuable tax savings. In this guide, we'll explain everything you need to know about LITO for the 2025-26 financial year, including how to calculate your offset and who qualifies.

What Is the Low Income Tax Offset (LITO)?

The Low Income Tax Offset is a tax rebate provided by the Australian government to help low-income earners reduce their tax liability. Unlike tax deductions, which reduce your taxable income, a tax offset directly reduces the amount of tax you owe. This means LITO can result in a larger tax refund or a smaller tax bill when you lodge your return.

LITO is calculated automatically by the Australian Taxation Office (ATO) when you lodge your tax return, so you don't need to apply for it separately. However, understanding how it works helps you plan your finances throughout the year and verify that your tax calculations are correct. For a complete picture of your tax obligations, you can use our income tax calculator to see how LITO fits into your overall tax position.

How Much Is LITO Worth in 2025-26?

For the 2025-26 financial year, the maximum Low Income Tax Offset is $700. However, the exact amount you receive depends on your taxable income. LITO follows a tiered structure where the full offset applies up to a certain income level, then gradually reduces as your income increases, eventually phasing out completely.

The offset is designed to provide the most benefit to those who need it most — Australians earning at the lower end of the income scale. As your income rises above specific thresholds, the offset decreases proportionally until it reaches zero. This ensures the tax system remains progressive while still providing meaningful relief to low and middle-income earners.

LITO Income Thresholds and Rates for 2025-26

The amount of LITO you can claim depends on where your taxable income falls within the following ranges. The ATO applies a specific formula to calculate your offset based on these thresholds:

For example, if you earn $40,000 per year, your LITO would be calculated as $700 minus ($40,000 - $37,500) × $0.05 = $700 - $125 = $575. If you earn $50,000, your offset would be $325 minus ($50,000 - $45,000) × $0.015 = $325 - $75 = $250. These calculations can be complex, which is why many Australians use a LITO calculator to get accurate results.

Who Is Eligible for LITO?

To qualify for the Low Income Tax Offset, you must be an Australian resident for tax purposes and have a taxable income below $66,668 for the 2025-26 financial year. The offset applies to both employed individuals and those with other sources of taxable income, such as investments or self-employment earnings.

It's important to note that LITO is different from the Low and Middle Income Tax Offset (LMITO), which was a temporary measure that ended in the 2021-22 financial year. LITO remains a permanent feature of Australia's tax system and continues to benefit eligible taxpayers. If you're unsure about your residency status or need to calculate your total tax liability including LITO, our take-home pay calculator can help you work through the numbers.

How LITO Affects Your Take-Home Pay

While LITO is calculated when you lodge your annual tax return, it can also affect your regular pay throughout the year. When you start a job, your employer uses tax tables to determine how much PAYG (Pay As You Go) withholding to deduct from your wages. These tables already account for LITO, meaning eligible low-income earners have less tax withheld from each paycheck.

This system helps smooth your cash flow rather than providing a lump sum at tax time. However, if you work multiple jobs or have irregular income, you might receive LITO benefits through multiple employers, which could result in a tax debt when you lodge your return. Understanding how LITO interacts with your Medicare levy obligations and other tax considerations is essential for accurate financial planning.

LITO and Other Tax Offsets

LITO is just one of several tax offsets available to Australian taxpayers. Depending on your circumstances, you may also be eligible for the Seniors and Pensioners Tax Offset (SAPTO), the Private Health Insurance Rebate, or offsets related to superannuation contributions. Each offset has its own eligibility criteria and income thresholds.

Unlike some other offsets, LITO is non-refundable, meaning it can only reduce your tax liability to zero — it won't result in a payment from the ATO if your tax payable is already zero. However, because most low-income earners also pay the Medicare levy, LITO often helps offset both income tax and Medicare levy obligations. For those with HECS-HELP debts, it's worth noting that LITO doesn't directly reduce your compulsory repayment amounts, as these are calculated separately based on your repayment income.

Practical Examples: Calculating LITO

Let's look at some real-world scenarios to see how LITO works in practice for the 2025-26 financial year:

Example 1 — Part-time worker earning $30,000: Sarah works part-time and earns $30,000 per year. Since her income is below $37,500, she receives the full LITO of $700. Combined with the tax-free threshold of $18,200, this significantly reduces her overall tax burden.

Example 2 — Full-time worker earning $55,000: Michael earns $55,000 annually. His LITO is calculated as $325 minus ($55,000 - $45,000) × $0.015 = $325 - $150 = $175. While this is less than the maximum, every dollar helps reduce his tax bill.

Example 3 — Freelancer earning $45,000: Emma works as a freelancer with a taxable income of exactly $45,000. Her LITO would be $700 minus ($45,000 - $37,500) × $0.05 = $700 - $375 = $325. This offset helps offset the tax she owes on her business income.

Maximising Your Tax Position

Understanding LITO is just one part of managing your tax effectively. Other strategies to improve your tax position might include salary sacrificing into superannuation, claiming all eligible work-related deductions, or timing deductible expenses to maximise their benefit. However, be careful with salary sacrificing if you're close to LITO thresholds — reducing your taxable income too much might seem beneficial, but remember that the offset itself decreases as income rises, so the interaction can be complex.

Keeping accurate records of your income and expenses throughout the year makes tax time much easier. Use the ATO's myTax system or consult a registered tax agent to ensure you're claiming all the offsets and deductions you're entitled to. If you have multiple income sources, consider using a tax professional to navigate the complexities of offsets, levies, and repayment obligations.

Summary: Key Points About LITO for 2025-26

The Low Income Tax Offset remains a valuable benefit for Australian taxpayers earning modest incomes. Here are the essential points to remember:

• The maximum LITO for 2025-26 is $700
• You receive the full offset if your taxable income is $37,500 or less
• The offset phases out gradually and reaches $0 at $66,668
• LITO is calculated automatically when you lodge your tax return
• The offset reduces your tax payable but cannot create a refund on its own

Whether you're a student working part-time, a parent returning to work, or simply earning a modest income, understanding LITO helps you plan your finances and ensure you're receiving the tax relief you're entitled to. For accurate calculations tailored to your specific situation, use our comprehensive tax calculators to see exactly how LITO affects your bottom line.