Income Tax
Theory
Income tax is worked out from your taxable income: all income minus allowable deductions. This Year 10 maths page shows how to read a tax table, add the Medicare levy, compare with the PAYG tax withheld to find a refund, and work out net pay. This subtopic is part of the Western Australian Year 10 course. Curriculum: WA Year 10 course only (income tax with tax tables); it builds on the Year 9 financial work of VC2M9A06 / AC9M9A05.
Gross income is all the money earned before anything is taken out: wages, salary, bank interest and other income. Allowable deductions are work-related costs, such as tools or uniforms, that the tax office lets you subtract.
Taxable income \(=\) gross income \(-\) allowable deductions. Income tax is worked out from it using a tax table, where each slice of income is taxed at its own rate.
The Medicare levy pays for public health care. It is \(2\%\) of taxable income, on top of the income tax.
Under PAYG (Pay As You Go), the employer takes tax out of each pay and sends it to the tax office. At the end of the financial year, if more was withheld than the tax and levy owed, you get a refund; if less, you pay the rest. Net pay is the pay left after tax and other deductions.
Tax table used on this page:
| Taxable income | Tax payable (2026–27 resident rates) |
|---|---|
| \(\$0\) – \(\$18\,200\) | Nil |
| \(\$18\,201\) – \(\$45\,000\) | \(15\)c for each \(\$1\) over \(\$18\,200\) |
| \(\$45\,001\) – \(\$135\,000\) | \(\$4020\) plus \(30\)c for each \(\$1\) over \(\$45\,000\) |
| \(\$135\,001\) – \(\$190\,000\) | \(\$31\,020\) plus \(37\)c for each \(\$1\) over \(\$135\,000\) |
| \(\$190\,001\) and over | \(\$51\,370\) plus \(45\)c for each \(\$1\) over \(\$190\,000\) |
How to work out income tax
- Find the yearly gross income: change weekly, fortnightly or monthly pay to a year, and add every job and any interest.
- Subtract the allowable deductions to get the taxable income.
- Choose the row of the tax table that contains the taxable income.
- Calculate the tax: the fixed amount for that row plus the rate times the dollars over the row's starting point.
- Add the Medicare levy if asked, then compare with the PAYG tax withheld for a refund or an amount owing.
Other questions you will meet
- Income exactly on a boundary (such as \(\$45\,000\)) belongs to the row that ends there.
- A rise in income: work out the tax at both incomes and subtract. Across a boundary, only the dollars above it are taxed at the higher rate.
- From tax back to income: find the row from the size of the tax, take off the fixed amount, divide by the rate and add the row's starting point (Example 3).
- From tax plus levy back to income: write tax \(+\) levy as an expression in the income \(x\), for example \(4020 + 0.30(x - 45\,000) + 0.02x\), and solve the equation.
- Comparing two people: divide one tax by the other. Twice the income means more than twice the tax, because the extra dollars fall in higher brackets.
(i) her taxable income
(ii) her income tax.
(i) Add every source of income, then subtract the deductions.
| \(\text{taxable income}\) | \(=\) | \(68\,750 + 310 - 1460\) |
| \(\) | \(=\) | \(\mathbf{\$67\,600}\) |
(ii) \(\$67\,600\) is in the \(\$45\,001\) – \(\$135\,000\) row.
| \(\text{tax}\) | \(=\) | \(4020 + 0.30 \times (67\,600 - 45\,000)\) |
| \(\) | \(=\) | \(4020 + 0.30 \times 22\,600\) |
| \(\) | \(=\) | \(4020 + 6780\) |
| \(\) | \(=\) | \(\mathbf{\$10\,800}\) |
Only the dollars over \(\$45\,000\) are taxed at \(30\)c. The \(\$4020\) covers the dollars below.
(i) Find the total of his income tax and Medicare levy.
(ii) Does Ollie get a refund or owe money? How much?
(i) Third row of the table, then \(2\%\) of the taxable income for the levy.
| \(\text{tax}\) | \(=\) | \(4020 + 0.30 \times (53\,900 - 45\,000)\) |
| \(\) | \(=\) | \(4020 + 2670\) |
| \(\) | \(=\) | \(\$6690\) |
| \(\text{levy}\) | \(=\) | \(0.02 \times 53\,900\) |
| \(\) | \(=\) | \(\$1078\) |
| \(\text{total}\) | \(=\) | \(\mathbf{\$7768}\) |
(ii) Compare with the PAYG tax already taken from his pay.
| \(\text{withheld}\) | \(=\) | \(185 \times 52\) |
| \(\) | \(=\) | \(\$9620\) |
| \(9620 - 7768\) | \(=\) | \(\$1852\) |
More was withheld than he owes, so Ollie gets a refund of \(\$1852\).
Find the row first. \(\$7470\) is more than \(\$4020\) (the fixed amount in the third row) but less than \(\$31\,020\), so she is in the \(\$45\,001\) – \(\$135\,000\) row.
| \(\text{tax above } 4020\) | \(=\) | \(7470 - 4020\) |
| \(\) | \(=\) | \(3450\) |
| \(\text{dollars over } 45\,000\) | \(=\) | \(3450 \div 0.30\) |
| \(\) | \(=\) | \(11\,500\) |
| \(\text{taxable income}\) | \(=\) | \(45\,000 + 11\,500\) |
| \(\) | \(=\) | \(\mathbf{\$56\,500}\) |
Check: \(4020 + 0.30 \times 11\,500 = 4020 + 3450 = 7470\). If the tax had been less than \(\$4020\), you would divide by \(0.15\) and add to \(\$18\,200\) instead.
(i) Find his income tax.
(ii) Find the total of his tax and levy.
(iii) Find his net income each month after tax and levy, to the nearest cent.
(i) \(\$162\,400\) is in the \(\$135\,001\) – \(\$190\,000\) row.
| \(\text{over}\) | \(=\) | \(162\,400 - 135\,000\) |
| \(\) | \(=\) | \(27\,400\) |
| \(\text{tax}\) | \(=\) | \(31\,020 + 0.37 \times 27\,400\) |
| \(\) | \(=\) | \(31\,020 + 10\,138\) |
| \(\) | \(=\) | \(\mathbf{\$41\,158}\) |
| \(\text{(ii) levy}\) | \(=\) | \(0.02 \times 162\,400\) |
| \(\) | \(=\) | \(\$3248\) |
| \(\text{total}\) | \(=\) | \(41\,158 + 3248\) |
| \(\) | \(=\) | \(\mathbf{\$44\,406}\) |
(iii) Take the tax and levy off the yearly income, then share over \(12\) months.
| \(\text{net yearly}\) | \(=\) | \(162\,400 - 44\,406\) |
| \(\) | \(=\) | \(\$117\,994\) |
| \(\text{monthly}\) | \(=\) | \(117\,994 \div 12\) |
| \(\) | \(=\) | \(9832.833\ldots\) |
| \(\) | \(\approx\) | \(\mathbf{\$9832.83}\) |
Common pitfalls
Frequently asked questions
How do you calculate taxable income?
Add up all your income for the year, including wages, salary and bank interest, then subtract your allowable deductions. The answer is your taxable income.
How do you use a tax table?
Find the row that contains your taxable income. Take the fixed amount in that row and add the rate times the number of dollars over the row's starting point.
What is the Medicare levy?
The Medicare levy is an extra \(2\%\) of taxable income that most Australian taxpayers pay to help fund the public health system. It is added to the income tax.
What does PAYG mean?
PAYG stands for Pay As You Go. Your employer takes tax out of every pay and sends it to the Australian Taxation Office, so the tax is paid during the year instead of all at once.
How do you know if you get a tax refund?
Add your income tax and Medicare levy. If the PAYG tax withheld during the year is more than this total, you get the difference back as a refund. If it is less, you owe the difference.
Does a pay rise put all my income in a higher tax bracket?
No. Only the dollars above the bracket's threshold are taxed at the higher rate. The rest of your income is taxed exactly as before.