Income and Taxation
Theory
A wage is paid by the hour and a salary is a fixed amount for a year. Income tax is worked out from a tax table of bands. This Year 9 maths page uses these financial contexts to work out pay, split a salary into weekly, fortnightly and monthly amounts, find taxable income, use a tax table, add the Medicare levy, and decide between a refund and a tax bill.
A wage is paid for each hour worked. The amount per hour is the hourly rate.
A salary is a fixed amount for a whole year. It is paid in equal parts, such as each week, each fortnight or each month. The yearly amount is also called per annum (p.a.).
Unless told otherwise, use \(1\) year \(= 52\) weeks \(= 26\) fortnights \(= 12\) months. A fortnight is two weeks.
Gross income is all the money earned before tax: wages or salary plus any other income, such as bank interest or dividends from shares.
Allowable deductions are work-related costs that can be taken off, such as work travel, tools or union fees. Taxable income is the gross income minus the deductions.
A tax table splits income into bands (brackets). The first part, up to the tax-free threshold of \(18\,200\) dollars, is not taxed. Each higher band is taxed at a higher rate, but only on the income inside that band.
The Medicare levy is an extra charge for the public health system, usually \(2\%\) of taxable income.
Under PAYG (pay as you go), tax is taken from each pay during the year. If more was withheld than you owe, you get a refund. If less, you get a tax bill.
A wage:
Working backwards is a division:
| From a yearly salary | Divide by | To go back |
|---|---|---|
| to a monthly amount | \(12\) | \(\times 12\) |
| to a fortnightly amount | \(26\) | \(\times 26\) |
| to a weekly amount | \(52\) | \(\times 52\) |
| to a daily amount | \(365\) (if told to) | \(\times 365\) |
Start with the taxable income:
The tax table used on this page and in the questions:
| Taxable income | Tax payable (2026–27 resident rates) |
|---|---|
| $0 – $18 200 | Nil |
| $18 201 – $45 000 | 15c for each $1 over $18 200 |
| $45 001 – $135 000 | $4020 plus 30c for each $1 over $45 000 |
| $135 001 – $190 000 | $31 020 plus 37c for each $1 over $135 000 |
| $190 001 and over | $51 370 plus 45c for each $1 over $190 000 |
How to work out pay
- Find the hours worked: finish time minus start time, minus any unpaid break. Write minutes as a decimal of an hour.
- Multiply the hours by the rate. If there are two rates, do each part and add.
- Convert a salary by dividing by \(52\), \(26\) or \(12\). For month to week, go to a year first.
- Compare jobs on the same basis, and give money to two decimal places.
How to work out income tax
- Find the taxable income: add all income, then subtract allowable deductions. For a weekly or fortnightly pay, multiply by \(52\) or \(26\) first.
- Choose the band the taxable income falls in.
- Subtract the start of the band, multiply by the cents in the dollar, and add the fixed amount.
- Finish: add the Medicare levy if asked, then compare with the PAYG tax withheld to find a refund or a bill.
(ii) Ella earned $693 in one week at $23.10 an hour. How many hours did she work?
(i) Divide by the number of pays in a year: \(52\) weeks, \(26\) fortnights or \(12\) months.
| \(\text{weekly}\) | \(=\) | \(71\,500 \div 52 = \mathbf{1375.00}\) |
| \(\text{fortnightly}\) | \(=\) | \(71\,500 \div 26 = \mathbf{2750.00}\) |
| \(\text{monthly}\) | \(=\) | \(71\,500 \div 12\) |
| \(\) | \(\approx\) | \(\mathbf{5958.33}\) |
So $1375.00 a week, $2750.00 a fortnight and $5958.33 a month.
(ii) Working backwards is a division: hours are the pay divided by the rate.
| \(\text{hours}\) | \(=\) | \(\dfrac{693}{23.10}\) |
| \(\) | \(=\) | \(\mathbf{30}\) |
Put both jobs on the same basis: per week.
| \(\text{Job A}\) | \(=\) | \(66\,300 \div 52 = 1275.00\) |
| \(\text{Job B}\) | \(=\) | \(34.20 \times 38 = 1299.60\) |
| \(\text{difference}\) | \(=\) | \(1299.60 - 1275.00\) |
| \(\) | \(=\) | \(\mathbf{24.60}\) |
Job B pays more, by $24.60 a week.
(i) his taxable income
(ii) his income tax
(iii) his Medicare levy at \(2\%\) of taxable income
(iv) the total.
Add other income to the salary, then take off the deductions.
| \(\text{(i)}\) | \(=\) | \(44\,600 + 900 - 1500\) |
| \(\) | \(=\) | \(\mathbf{44\,000}\) |
| \(\text{(ii) tax}\) | \(=\) | \(0.15 \times (44\,000 - 18\,200)\) |
| \(\) | \(=\) | \(0.15 \times 25\,800\) |
| \(\) | \(=\) | \(\mathbf{3870.00}\) |
| \(\text{(iii) levy}\) | \(=\) | \(0.02 \times 44\,000 = \mathbf{880.00}\) |
| \(\text{(iv) total}\) | \(=\) | \(3870 + 880 = \mathbf{4750.00}\) |
The Medicare levy is a percentage of the whole taxable income, not just the part in one band.
(i) Does she get a refund or a bill, and how much?
(ii) What percentage of her taxable income is her tax, to two decimal places?
(i) $105 000 is in the third band.
| \(\text{over } 45\,000\) | \(=\) | \(105\,000 - 45\,000\) |
| \(\) | \(=\) | \(60\,000\) |
| \(\text{tax}\) | \(=\) | \(4020 + 0.30 \times 60\,000\) |
| \(\) | \(=\) | \(4020 + 18\,000\) |
| \(\) | \(=\) | \(22\,020\) |
| \(\text{withheld} - \text{tax}\) | \(=\) | \(23\,500 - 22\,020\) |
| \(\) | \(=\) | \(1480\) |
More was withheld than she owes, so she gets a refund of $1480.00.
(ii)
| \(\dfrac{22\,020}{105\,000} \times 100\%\) | \(=\) | \(20.971\ldots\%\) |
| \(\) | \(\approx\) | \(\mathbf{20.97\%}\) |
She pays well under \(30\%\) overall, because the lower parts of her income are taxed at lower rates.
Common pitfalls
Frequently asked questions
What is the difference between a wage and a salary?
A wage is paid for each hour worked, so the pay changes with the hours. A salary is a fixed amount for the year, paid in equal parts whatever the hours.
How many fortnights are in a year?
There are \(26\) fortnights in a year, because a year has \(52\) weeks and a fortnight is \(2\) weeks.
How do you calculate income tax in Australia?
Find your taxable income, find its band in the tax table, subtract the start of the band, multiply by the cents in the dollar, and add the fixed amount for that band.
What is taxable income?
It is your gross income, including other income such as interest, minus your allowable deductions. The tax is worked out on this amount.
How do you work out the Medicare levy?
Multiply the taxable income by \(2\%\), which is \(0.02\). On a taxable income of $44 000 the levy is $880.
Do you pay more tax on all your income if you move into a higher tax bracket?
No. Only the part of your income inside the higher bracket is taxed at the higher rate. The rest is taxed exactly as before.