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Tax 2021: How to figure out your tax bracket

·5-min read
Australian taxation lodgement forms and an alarm clock with a post it note reading 'tax time'.
Your tax bracket determines how many cents per dollar you pay in taxes (Source: Getty)

Tax time is fast approaching and to make sure you stay on the right side of the ATO here is our guide to figuring out which tax bracket you're in and what effect that has on your return.

Your tax bracket determines how many cents per dollar you pay in taxes. The lower your income, the less cents per dollar you have to pay.

But, it is also determined by whether or not you’re an Australian citizen and if you’re here on a working visa.

If you’re an Australian citizen

If you’re an Australian figuring out your tax bracket is pretty straightforward.

If you earn under $18,200 a year, you won’t have to pay tax on your income. You’re in the lowest tax bracket and you won't owe the Government anything come the end of financial year (EOFY).

This is also known as the tax free threshold, meaning that for every Australian citizen the first $18,200 earned is tax free. You will only be charged tax on what you earn over this amount.

If you earn between $18,201 and $45,000 you will be taxed 19 cents for every dollar over $18,200. This means if you earn $20,000 a year you are only taxed 19 cents for every dollar on $1,800.

If you earn between $45,001 and $120,000 you will pay a flat rate of $5,092 plus 32.5 cents for each $1 over $45,000. So, if you earn $55,000 a year you will be taxed $9,422.

If you earn $120,001 to $180,000 you will pay a flat rate of $29,467 plus 37 cents for each $1 over $120,000.

So, if you earn $150,000 you will pay around $42,997 in tax.

If you earn $180,001 and over you will pay a flat rate of $51,667 plus 45 cents for each $1 over $180,000.

If you earn $200,000 you’d be paying around $63,097 in annual taxes.

If you’re a foreign resident

Things are slightly different if you’re a foreign resident living in Australia.

One major difference is there are only three tax brackets, which mean if you’re a foreign resident earning $40,000 a year you will be paying the same tax rate as someone earning $100,000 a year.

Here is the breakdown.

If you earn between $0 and $120,000 you will pay 2.5 cents for each $1.

If you earn between $120,001 and $180,000 you will pay a flat rate of $39,000 plus 37 cents for each $1 over $120,000.

And if you earn between $180,001 and over you will pay a flat rate of $61,200 plus 45 cents for each $1 over $180,000.

If you are here on a working visa

If you are here on a working visa, there is yet another set of tax brackets for you - here is the rundown.

If you earn between $0 and $37,000 you will pay 15 cents for each dollar you earn.

If you earn between $37,000 and $90,000 you will pay a flat rate of $5,550 plus 32.5 cents for each dollar you earn over $37,000.

If you earn between 90,001 and $180,000 you will pay a flat rate of $22,775 plus 37 cents for every dollar earned over $90,000.

And, if you earn $180,001 and over you will pay a flat rate of $56,075 plus 45 cents for every dollar earned over $180,000.

Tools to help calculate your tax

If you want to double check that your employer has calculated your tax correctly you can go to the ATO website and use its Tax Withheld calculator tool.

It only takes between two and 10 minutes to check so it’s worthwhile if you’re concerned.

Another handy tool is the ATO’s income tax calculator and simple tax calculator. The income tax calculator is more comprehensive and will include things like the Medicare levy, which has not been included in the figures above.

If you have any questions relating to your tax return you can visit the ATO website or ask a professional for help.

How is my tax going to change?

Your tax has not changed this year but the Federal Budget outlined that change will come into effect for next financial year.

The Government brought forward stage 2 of the Personal income tax plan from July 1 2022 and will come into effect 1 July 2021.

Tax cuts in stage 2 of the Personal income tax plan apply from 1 July 2021 as follows:

  • The upper limit of the 19 per cent personal income tax bracket was raised from $37,000 to $45,000

  • The upper limit of the 32.5 per cent personal income tax bracket was raised from $90,000 to $120,000.

These changes will apply to the income you receive between 1 July 2021 and 30 June 2022, so while you don’t need to worry about it now, you should be aware of the changes for next year

But if you claimed JobKeeper or JobSeeker payments, you will need to report these. Yahoo Finance has written a guide on how pandemic payments will alter you tax return this year.

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