Year 10 Maths - 10A Indices and Surds

Income Tax

Q: What is the Medicare levy?

The Medicare levy is an extra 2 percent of taxable income that most Australian taxpayers pay to help fund the public health system. It is added to the income tax.

20 practice questions 0 video lessons Theory + worked examples

Practice 20 questions

Practice questions

Every question with a fully worked solution.

Start practising

Theory

Income tax is worked out from your taxable income: all income minus allowable deductions. This Year 10A maths page shows how to read a tax table and write a row as a formula, add the Medicare levy, find a refund, work out the tax saved by a deduction or added by a bonus, and work backwards from the tax. 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.

Each slice of income is taxed at its own rate. Add the tax on each slice to get the total.

Work out the taxable income first. Tax and the Medicare levy are both worked out from it.

\[\begin{aligned}\text{taxable income} &= \text{gross income}\\ &\quad - \text{allowable deductions}\end{aligned}\]

taxable income = gross income - 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 $\$190\,000$

\[\text{Medicare levy} = 0.02 \times \text{taxable income}\]

Medicare levy = 0.02 \times taxable income

Reading a row. “\(\$4020\) plus \(30\)c for each \(\$1\) over \(\$45\,000\)” means tax \(= 4020 + 0.30 \times (\text{income} - 45\,000)\). The fixed amount covers the slices below the row.

Net pay. Net pay \(=\) gross pay \(-\) all deductions (PAYG tax, union fees, extra super and so on). Deductions as a percentage \(= \dfrac{\text{total deductions}}{\text{gross pay}} \times 100\%\).

Where the fixed amounts come from. Each fixed amount is the total tax on all the income below that row, built up from the rates of the rows above it. So the fixed amounts also tell you the tax at each threshold, which is how you find the row when working backwards.

A row as a formula. Expanding a row gives a linear formula for the tax \(T\) on income \(I\). In the \(15\)c row, \(T = 0.15(I-18\,200)\), which is \(T = 0.15I-2730\). In the top row, \(T = 51\,370+0.45(I-190\,000)\), which is \(T = 0.45I-34\,130\). Formulas like these make it easy to set up equations.

Average tax rate \(= \dfrac{\text{total tax}}{\text{taxable income}}\times 100\%\). It is always lower than the marginal rate on the last dollar.

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.
Saving from a deduction or extra tax on a bonus: multiply the amount by the marginal rate (plus $2\%$ for the levy). If it crosses a threshold, split it (Example 4).

Example 1 — Taxable income and tax

Priya earns a salary of $\$68\,750$ and $\$310$ in bank interest. Her allowable deductions are $\$1460$. Using the tax table (Formulas tab), find
(i) her taxable income
(ii) her income tax.

Solution

(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.

$\text{tax}$	$=$	$4020 + 0.30 \times (67\,600 - 45\,000)$
	$=$	$4020 + 0.30 \times 22\,600$
	$=$	$4020 + 6780$
	$=$	$\mathbf{\$10\,800}$

4020 + 0.30 \times (67600 - 45000) = 10800

Only the dollars over $\$45\,000$ are taxed at $30$c. The $\$4020$ covers the dollars below.

Example 2 — Medicare levy and a refund

Ollie's taxable income is $\$53\,900$. His employer withheld $\$185$ PAYG tax each week for $52$ weeks. The Medicare levy is $2\%$ of taxable income.
(i) Find the total of his income tax and Medicare levy.
(ii) Does Ollie get a refund or owe money? How much?

Solution

(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.

$\text{withheld}$	$=$	$185 \times 52$
	$=$	$\$9620$
$9620 - 7768$	$=$	$\$1852$

185 \times 52 - 7768 = 1852

More was withheld than he owes, so Ollie gets a refund of $\$1852$.

Example 3 — Working backwards from the tax

Lena paid $\$7470$ in income tax (no Medicare levy included). Use the tax table to find her taxable income.

Solution

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.

$\text{tax above } 4020$	$=$	$7470 - 4020$
	$=$	$3450$
$\text{dollars over } 45\,000$	$=$	$3450 \div 0.30$
	$=$	$11\,500$
$\text{taxable income}$	$=$	$45\,000 + 11\,500$
	$=$	$\mathbf{\$56\,500}$

45000 + \frac{7470 - 4020}{0.30} = 56500

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.

Example 4 — A bonus across a threshold

Tom's taxable income is $\$41\,000$ before an $\$8000$ bonus. The Medicare levy is $2\%$.
(i) How much extra tax and levy does he pay because of the bonus?
(ii) What percentage of the bonus does he keep?

Solution

(i) The bonus takes him from $\$41\,000$ to $\$49\,000$, across the $\$45\,000$ threshold. Split it at the threshold.

$4000\text{ at }15\text{c}$	$=$	$\$600$
$4000\text{ at }30\text{c}$	$=$	$\$1200$
$\text{levy on }8000$	$=$	$\$160$
$\text{extra}$	$=$	$\mathbf{\$1960}$

600 + 1200 + 160 = 1960

(ii) He keeps $8000-1960 = \$6040$, and $\dfrac{6040}{8000}\times 100\% = \mathbf{75.5\%}$.

Only the dollars above $\$45\,000$ are taxed at $30$c. The rest of his income is taxed exactly as before.

Common pitfalls

Taxable income comes first. Subtract deductions and add interest before using the table. The tax table is never applied to gross pay or to the deductions.

Only the dollars over the threshold. In the third row, $30$c applies to the income above $\$45\,000$, not to the whole income.

The Medicare levy is on taxable income. Work it out as $2\%$ of taxable income, not $2\%$ of the tax.

Refund or owe? If PAYG withheld is more than the tax and levy, the difference is a refund. If it is less, the difference must be paid. Check which way round.

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.

← Previous subtopic

Depreciation

Next subtopic →

This is the last subtopic

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 \(\$190\,000\)

\(\text{taxable income}\)	\(=\)	\(68\,750 + 310 - 1460\)
\(\)	\(=\)	\(\mathbf{\$67\,600}\)

\(\text{tax}\)	\(=\)	\(4020 + 0.30 \times (67\,600 - 45\,000)\)
\(\)	\(=\)	\(4020 + 0.30 \times 22\,600\)
\(\)	\(=\)	\(4020 + 6780\)
\(\)	\(=\)	\(\mathbf{\$10\,800}\)

\(\text{tax}\)	\(=\)	\(4020 + 0.30 \times (53\,900 - 45\,000)\)
\(\)	\(=\)	\(4020 + 2670\)
\(\)	\(=\)	\(\$6690\)
\(\text{levy}\)	\(=\)	\(0.02 \times 53\,900\)
\(\)	\(=\)	\(\$1078\)
\(\text{total}\)	\(=\)	\(\mathbf{\$7768}\)

\(\text{withheld}\)	\(=\)	\(185 \times 52\)
\(\)	\(=\)	\(\$9620\)
\(9620 - 7768\)	\(=\)	\(\$1852\)

\(\text{tax above } 4020\)	\(=\)	\(7470 - 4020\)
\(\)	\(=\)	\(3450\)
\(\text{dollars over } 45\,000\)	\(=\)	\(3450 \div 0.30\)
\(\)	\(=\)	\(11\,500\)
\(\text{taxable income}\)	\(=\)	\(45\,000 + 11\,500\)
\(\)	\(=\)	\(\mathbf{\$56\,500}\)

\(4000\text{ at }15\text{c}\)	\(=\)	\(\$600\)
\(4000\text{ at }30\text{c}\)	\(=\)	\(\$1200\)
\(\text{levy on }8000\)	\(=\)	\(\$160\)
\(\text{extra}\)	\(=\)	\(\mathbf{\$1960}\)

Income Tax

📖 Theory

How to work out income tax

Other questions you will meet

Common pitfalls

Frequently asked questions

Theory