How Australian Tax Brackets Work in 2024 | Income Tax Explained For Beginners

in this video I'm going to explain how the  Australian tax system works and how you can easily   calculate how much you're going to pay in tax  each year on your tax return let's get straight   into it the Australian tax system operates on a  progressive tax structure this means that the tax   rates increase as your income Rises the more money  you earn the more you are taxed the Australian tax   system consists of five tax brackets each  with its own tax rate if we go to the ATO   website they provide a table of the Australian  tax brackets for the 2023-2024 financial year   the first bracket is tax free so you can earn up  to eighteen thousand two hundred dollars and not   have to pay any tax at all then moving on we have  what's called marginal tax rates once your income   goes past the tax-free threshold you'll be taxed  on the remaining income based on your marginal tax   rates marginal tax rates refer to the tax rates  applied to each portion of your income Within   These tax brackets the second bracket charges  you 19 tax for any amount you earn between 18 201   and forty five thousand dollars the dirt bracket  charges you five thousand and ninety two dollars   plus 32.5 percent for any amount between forty  five thousand and one dollars and one hundred   twenty thousand dollars the fourth bracket charges  you 29 467 dollars plus 37 for any amount between   one hundred and twenty thousand and one dollars  and one hundred and eighty thousand dollars and   finally the fifth bracket charges you fifty one  thousand six hundred and sixty seven dollars plus   forty five percent for any amount over 180 000  now you may be wondering what these amounts are   and basically they are the maximum amount charged  for the previous tax brackets let me show you an   example with my own table to help you understand  better James is a project manager who earns 220   000 per year let's work out how much tax James  would have to pay for the year using the tax   brackets we start off with the first bracket which  is the tax free threshold so the first 18 200 will   pay zero percent tax for the second bracket if  you earn between eighteen thousand two hundred   dollars and forty five thousand dollars which is  twenty six thousand eight hundred dollars you will   be taxed nineteen percent for that portion so  nineteen percent of twenty six thousand eight   hundred is five thousand and ninety two dollars  this is the maximum amount of tax you can be   charged on this bracket for the third bracket if  you earn between forty five thousand dollars and   one hundred and twenty thousand dollars which is  seventy five thousand dollars in total you'll be   taxed thirty two point five percent for that  portion so 32.5 of seventy five thousand is   twenty four thousand three hundred 75 dollars  which is the maximum amount of tax you can be   charged in this bracket for the fourth bracket  if you earn between 120 000 and 180 000 which is   sixty thousand dollars you'll be taxed at thirty  seven percent for that portion so thirty seven   percent of sixty thousand is twenty two thousand  two hundred dollars which is the maximum amount   of Taxi can be charged in this bracket and for the  fifth bracket you'll be charged 45 for any amount   over one hundred and eighty thousand dollars so  since James earns one hundred and twenty thousand   dollars he will have forty thousand dollars in  this bracket taxed at forty five percent forty   five percent or forty thousand dollars is eighteen  thousand dollars so if you total up all the tax   from each bracket it comes to sixty nine thousand  six hundred sixty seven dollars which is the total   tax payable for James but the tax does not end  there every Australian is charged an additional   two percent Medicare Levy this Levy is to help  fund Australia's Public Health Care system so   this bulk Bill doctor visits that you go to are  not entirely free you and many other Australian   residents are helping to fund it by paying the  Medicare Levy through tax so James has to pay an   extra two percent Medicare levy on his 220 000  which comes through four thousand four hundred   dollars in addition if you earn over ninety three  thousand one dollars as a single or 186 thousand   and one dollars as a family you'll be charged an  additional one percent Medicare Levy surcharge   if you do not have an appropriate level or  private patient Hospital cover so the Australian   government encourages High income earners to  sign up for Private health insurance to put less   burdens on the hospitals funded by the public  health system and usually it's much cheaper to   sign up for a qualifying Private health insurance  package than paying the surcharge so it's probably   a good idea to do it if you're a high income  owner and if you're interested I'll leave a   link down below to an article that explains the  Medicare Levy surcharge in Greater detail and   how to avoid paying it so for this example let's  assume that James already has the correct level of   Private health insurance therefore he'll be exempt  from paying the Medicare Levy surcharge so if we   add up his income tax payable and his Medicare  Levy payable we get 74 067 this is his total tax   payable now there is a common misconception that a  lot of people have about these tax brackets I also   used to think this when I was younger and that is  once your salary hits a certain bracket or your   salary is suddenly taxed at that higher rate so  for example if I was earning forty five thousand   dollars and I received a pay rise of one thousand  dollars I used to think that the one thousand   dollars will push me into the third tax bracket  and I would have to pay 32.5 on my entire salary   I mean tax wasn't taught to me or many people  in school so I didn't know any better so it's   only when I studied Finance at University that I  found out this was not true your income is charged   progressively per bracket so if you ever get a  pay rise you'll only pay a higher tax rate on   the portion that went over the bracket so in this  case only the extra one thousand dollars will be   taxed at the higher 32.5 rate and not your entire  salary I hope all this is making sense to you so   far and just to help you understand better I'll  go through a few more examples and show you how   to easily calculate your tax a useful online tool  I like to use is this income tax calculator on the   moneysmart website which is a calculator provided  by the government that does all the work for you   and I will link it down below so feel free to  check it out so using this calculator in the first   example Sally earns exactly forty five thousand  dollars per year and she wants to calculate how   much tax she must pay for the year so using the  calculator let's enter forty five thousand here   now from the tax table we know Sally falls into  the second tax bracket so the first 18 200 is tax   free if we minus 45 000 by 18 200 we get twenty  six thousand eight hundred dollars this is the   amount that we chat that 19 as per the second tax  bracket so twenty six thousand eight hundred times   nineteen percent equals five thousand and ninety  two dollars this is Sally's income tax payable   then we need to include the two percent Medicare  levy on forty five thousand dollars which is nine   hundred dollars this Sally's Medicare Levy payable  so if we add them together that is five thousand   nine hundred ninety two dollars this is the total  tax salary we'll have to pay for the year easy   peasy right let's move on to the second example  Ben earns seventy thousand dollars per year and   he wants to calculate how much tax he must pay for  the year so Ben falls into the third tax bracket   so he'll be charged five thousand and ninety  two dollars up front which is the portion of   income between eighteen thousand two hundred  one dollars and forty five thousand dollars as   per the previous example with Sally then he'll  be charged 32.5 for any amount over forty five   thousand so seventy thousand minus forty five  thousand is twenty five thousand dollars twenty   five thousand times thirty two point five percent  is eight thousand one hundred twenty five dollars   this Ben's income tax payable then we include  the two percent Medicare levy on Seventy thousand   dollars which is one thousand four hundred dollars  this is Ben's Medicare Levy payable and if we add   this all up the total is 14 617 it is the total  tax bin we'll have to pay for the year let's   move on to the third example Mia earns 110 000  and received a twenty thousand dollars pay rise   at the start of the financial year she wants the  calculator take-home pay before and after the pay   rise so this is a perfect example to prove the  misconception that getting a pay rise may push   you into a higher tax bracket which will lower  your take-home pay so let's look at scenario one   before she received the pay rise 110 000 per year  puts her on the third tax bracket so let's put the   table she must pay five thousand and ninety two  dollars plus 32.5 percent for any amount over   forty five thousand dollars so 110 000 minus forty  five thousand is sixty five thousand dollars sixty   five thousand times thirty two point five percent  is twenty one thousand one hundred and twenty five   dollars so if we add 5092 and 21 125 we get 26  217 which is Mia's income tax payable then we   include the two percent Medicare levy on 110 000  which is two thousand two hundred dollars and in   this example Mia does have an appropriate level  of private patient Hospital cover so she does not   need to pay an extra one percent on Medicare Levy  surcharge if we add all this up the total is 28   000 and 417 which is the income tax payable plus  Medicare Levy so if we subtract that from my total   salary Mia's take home pay after income tax  and Medicare Levy is 81 583 now let's look at   scenario two after Mia received a pay rise the  extra twenty thousand dollars increases Mia's   total salary to 130 000 which pushes her to the  fourth tax bracket so if we follow the table she   has to pay 29 467 which is just the total income  tax for one hundred twenty thousand dollars that   leaves ten thousand dollars remaining which will  be taxed at thirty seven percent as per the fourth   tax bracket so ten thousand times thirty seven  percent is three thousand seven hundred dollars if   we add twenty nine thousand four hundred and sixty  seven dollars with three thousand seven hundred we   get thirty three thousand one hundred sixty seven  dollars which is Mia's income tax payable then we   include the two percent Medicare levy on one  hundred thirty thousand dollars which is two   thousand six hundred dollars and again since Mia  has the correct Private health cover she does not   need to pay the extra one percent Medicare Levy  surcharge if we add everything up the total is   thirty five thousand seven hundred sixty seven  dollars which is the income tax payable plus   the Medicare Levy if we subtract that from  my total salary Mia's take home pay of the   income tax the Medicare Levy is 94 233 so if we  compare the two scenarios you'll see that after   tax Mia will take home an extra twelve thousand  six hundred fifty dollars if she receives the   twenty thousand dollars pay rise it's that simple  feel free to play around with this calculator for   your own salary and see what you come up with  it is important to note that the tax rates may   change each year so if you are watching this  video in the future make sure you look up the   current tax rates for the current Financial Year  by the way if you enjoyed this video the secret   word today is tree so comment it down below so  I know you've made it this far also consider   subscribing to the channel as I'll be making many  more videos like this in the future and you don't   want to miss them and if you're interested to  learn how you can legally reduce your attacks   in Australia check out this video on screen where  I go over eight legal ways you can reduce your   tax bill thank you for watching I appreciate  you and I'll see you in the next video [Music] thank you

Channel: Bryan Invest

Views: 38,381

Keywords: #tax, #income tax, #taxation, #australian tax, #ATO, #australian tax office, #australian tax brackets, #investing, #australia, #aussie

Id: qXwFMTDMuvg

Length: 8min 52sec (532 seconds)

Published: Fri Jul 14 2023