Why Am I Getting Taxed So Much?

Once you find steady casual hours or full-time employment, you’ll start to think “am I getting stitched up here?” when you see a hefty sum of your earnings get taxed before it even hits your account. You start to get the hang of it, knowing roughly what you’ll earn for each pay cycle, so you don’t generally look at how much you’re getting taxed after a while.

But when tax time comes around at the end of the financial year, you never really know what to expect. Will I get $170 back like every other year, get $2000 like my mates (how do they do it) or end up owing (a total neg)? If you are someone like me that literally has no idea, it’s okay. It does get confusing.

Before I tell you why you may be getting taxed an arm and a leg, I’ll explain the basics:

How does my employer determine how much I get taxed?

Based on your earnings:

$0 - $18,200 - if you earn between this, you don’t pay any taxes. Don’t get me wrong, you will still pay tax every pay cycle but if you earn under $18,200 come tax time, you will get it all back.

$18,201 - $45,000 - if you earn between this, you will get taxed 19c for each dollar you earn over $18,200. You’ll still be paying tax no matter what but it will be levelled at tax time.

$45,001 - $120,000 - if you earn between this, you will get taxed 32.5c for each dollar you earn over $45,000.

I’m a casual employee - how do they calculate my tax?

Generally, your employer will calculate how much tax to withhold from your payments using a calculator or spreadsheet from the ATO. If they take too much (which some do) you might get a nice surprise of money at tax time.

So, here are the multiple reasons as to why probably why you’re not getting the decent tax return you thought you’d get:

1. You’ve got a HELP (Higher Education Loan Program) debt

This counts for HECS, FEE-HELP, VET student loans, etc. According to StudyAssist, if you earn more than $47,014 per year, you’ll need to pay back your debt and it varies on how much you earn to what you pay. You can find all this info on your myGov and ATO account under ‘Loan accounts’ to see your transactions - like how much your university units cost, how much money gets taken out which is called a ‘Compulsory repayment credit’.

You can either;

• Tell your employer that you are studying and that you want them to take an additional amount of your pay to cover your debt. The ATO will then see your withheld tax and withheld HELP payments. They’ll generally calculate how much they are taking based on your income. You generally tell your employer this information when you sign your tax file number declaration but I’d double check - this’ll help at tax time so you don’t get hit with a massive bill.
• Don’t tell your employer and have your HECS come out all at once at tax time

2. You’re receiving government allowances or payments

If you’re receiving Centrelink payments for any reason, it counts as income. For example, if you earn just under the $18,200 threshold but then receive $10,000 in government payments for the year, it'll push you into the next tax bracket you’ll get taxed on if you earnt that extra payment. It’ll get worked out at tax time though.

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3. You incorrectly made multiple claims for the tax-free threshold

If you have more than one job, you could be claiming the tax-free threshold on both jobs when you were filling out your onboarding paperwork. It doesn’t really explain what it means but basically, remember how I said you can only earn up to $18,200 before you start paying tax? Well, you can only do it for one job and you’d generally select it for the job you earn the most. If you tick that box for both, you’ll get taxed less during the year, meaning at tax time you’ll have a pretty exxy bill coming your way. Check with your payroll, or fill out a Withholding Declaration form again to fix it up.

4. Your income has increased and you have moved into a higher tax bracket

It’s as simple as moving from casual to full-time where you see a massive increase but hey, we’ve all gotta pay ‘em!

5. Salary packaging can change your income

Some employers receive fringe benefits (generally in the industry of teachers, nurses, and not-for-profit organisations) where some of your pay is not counted as taxable income. So basically, you’re only paying tax on your earnings that are not salary packaged - it does make a massive difference when you don’t have to pay tax on $15,900 of your earnings each financial year on it and might push you into the lower tax bracket. 

Peeps with a HECS debt: Some employers think because you have a lower taxable income with salary packaging that it won’t affect your HECS debt but you’ll be owing massively if you don’t look into this - your HECS is calculated by the ATO on your ‘adjustable taxable income’ including your earnings + fringe benefits combined. TL;DR - if you don’t ask your employer to up your HECS repayments if you are salary packaging, you could be owing heaps. Seek financial advice if you aren't sure!

From someone who has gone from getting a phat payment to being stitched up and everything in between - make sure you are doing everything in your control to get the best result at tax time and whatever will be, will be!