Yahoo Finance Tax warning as Aussies hit with $7,000 ATO bills: ‘Will happen’
Aussies can now lodge their tax returns for the 2023-24 financial year and many are being hit with huge bills.
Tax time is officially here and many Aussies are rushing to lodge their tax returns in the hopes of getting a refund. But some have now come to the bitter realisation that not only are they not getting anything back, they actually owe money to the Australian Taxation Office (ATO).
Social media has been filled with Aussies sharing their hefty tax bills, with one woman staring down the barrel of a $7,000 bill. Another shared she was hit with a near $3,000 bill.
Tax Invest Accounting director and registered tax agent Belinda Raso told Yahoo Finance more tax problems were “coming to the surface” since the $1,500 Low and Middle Income Tax Offset (LMITO) came to an end.
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On top of this, she noted more Aussies are now working multiple jobs to get by and this could also see them stuck with a tax bill.
“People need to work out what’s caused the tax debt this year and then fix it,” Raso warned.
“If they don’t fix it, it will happen again because the stage three tax cuts aren’t going to make a difference with that at all.”
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Why do I owe money to the ATO?
Claiming the tax-free threshold on more than one job and not declaring your HECS-HELP debt to your employer are two of the “major reasons” why people often have a tax debt, Raso said.
Here are some other common reasons.
You worked multiple jobs
Even if you didn’t claim the tax-free threshold twice, you may still have underpaid tax due to the “confusing” way the payroll system works.
“If a person has two jobs and they’ve already earnt $45,000 in one job they are going to be in the tax bracket of 32.5 per cent, plus Medicare levy,” Raso told Yahoo Finance.
“If they tell the second job not to claim the tax-free threshold and they earn $20,000 they are going to be taxed at that first tax level, which is 19 per cent, plus 2 per cent Medicare levy when they should be taxed at 32.5 per cent, plus Medicare levy.”
Everyone has done everything right in this scenario but an “failure” in the payroll system means you will have underpaid 13.5 per cent tax on your second job.
If you have a HECS/HELP debt, your cumulative income could also push you over the threshold to start repaying your debt, or the threshold to repay it at a higher rate.
You received bank interest
If you’ve been stashing your cash in a savings account, you could also end up with a tax bill.
“Most Aussies don’t realise you need to pay tax on any interest you receive. So whilst it may not sound like a lot, you could be paying 34.5 per cent as the average person,” Raso said.
This is becoming more common for people now that savings rates are higher, thanks to recent interest rate hikes.
“That can become a big hit. So $1,000 paid interest to you is going to end up being a $345 tax debt,” Raso said.
You have to pay the Medicare levy surcharge
Salary sacrifice and reportable fringe benefits can help you save tax but they will be taken into account when determining your liability for the Medicare Levy Surcharge.
This is a penalty you have to pay if you have to pay if you earn over a certain amount and don’t have private health insurance. For the last financial year, the thresholds were $93,000 for singles and $186,000 for families.
“When you’ve got salary sacrifice that gets added back onto your taxable income and you [may have] gone over that amount and get hit with a levy surcharge,” Raso said.
“The same thing happens with reportable fringe benefits, which are a non-cash benefit your employer gives you.”
What should I do if I get a tax bill?
If you get a tax bill, you will need to pay it by the due date on your Notice of Assessment. If you lodged your tax return yourself, this will be November 21.
If you don’t pay your bill on time, the ATO will start charging you interest on your debt.
You may be able to set up a payment plan with the ATO, so you don’t have to pay it off in one big lump sum.
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