Calculating Tax Payable or Refundable: A Case Study

Introduction

In the realm of personal finance, understanding one’s tax liability is a crucial aspect. For married individuals like Angela, who are resident taxpayers, accurate tax calculations can greatly impact their financial planning. In this scenario, Angela earns a wage of $65,000, and her employer has withheld $9,800 for the PAYG (Pay As You Go) tax. Additionally, Angela has work-related expenses deductions amounting to $3,500, and she qualifies for a dependent’s tax offset of $1,365. With these variables in mind, we will delve into the calculations to determine whether Angela will have a tax payable or a refund.

Calculating Taxable Income

To calculate the taxable income, we begin with Angela’s total wage of $65,000 and subtract her work-related expense deduction of $3,500. This results in a taxable income of $61,500.

Calculating Tax Before Offset: Angela’s tax liability needs to be determined before accounting for the dependent’s tax offset. The Australian tax system employs a progressive tax rate structure, where different portions of income are taxed at different rates. For the 2023 financial year (note that tax rates might have changed after my last knowledge update in September 2021), the tax rates are as follows:

• Up to $18,200: 0% tax
• $18,201 to $45,000: 19% tax
• $45,001 to $120,000: 32.5% tax
• $120,001 to $180,000: 37% tax
• Over $180,001: 45% tax

Based on Angela’s taxable income of $61,500, her tax liability before any offsets or deductions can be calculated by applying the appropriate tax rates to the corresponding income brackets. This calculation yields a pre-offset tax liability of approximately $11,602.50.

Applying Dependent’s Tax Offset

Angela is entitled to a dependent’s tax offset of $1,365. This offset directly reduces her tax liability. Subtracting the offset from the pre-offset tax liability results in an adjusted tax liability of approximately $10,237.50.

Considering Withheld PAYG

Angela’s employer has already withheld $9,800 for PAYG tax. To determine whether Angela will owe additional taxes or be eligible for a refund, we subtract the withheld amount from the adjusted tax liability. The calculation reveals that Angela is due to receive a tax refund.

Answer: In conclusion, based on the given information and calculations, Angela is eligible for a tax refund of approximately $1,437.50 (adjusted tax liability of $10,237.50 minus withheld PAYG of $9,800).

It’s essential to note that tax calculations can be influenced by various factors, including deductions, offsets, and potential changes in tax laws. Consulting a qualified tax professional or using official tax calculators is recommended to ensure accurate and up-to-date results.