Mathematics Standard • Year 11 • Module 3 • Lesson 8
Calculating Income Tax
Apply the 2024–25 tax brackets, Medicare levy, and PAYG reconciliation to realistic Australian taxpayer scenarios.
Reference, 2023–24 ATO tax brackets (residents), supplied historical table
Rates change between years. Always work from the table supplied with the question, not from a table you have memorised. The current resident rates differ from these, see lesson 8.
| Taxable income | Tax on this income |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | Nil + 19c for each $1 over $18,200 |
| $45,001 – $120,000 | $5,092 + 32.5c for each $1 over $45,000 |
| $120,001 – $180,000 | $29,467 + 37c for each $1 over $120,000 |
| $180,001 + | $51,667 + 45c for each $1 over $180,000 |
Medicare levy = 2% of taxable income (added separately to income tax).
Problem 1, Refund for a graduate teacher
Mia is a first-year graduate teacher. Her taxable income for the year was $74,200. Her employer withheld $16,250 in PAYG tax across the year.
Set up: What are we solving for?
(i) Calculate Mia's income tax using the bracket formula. 2 marks
(ii) Calculate Mia's Medicare levy and total tax liability. 2 marks
(iii) Determine whether Mia receives a refund or owes a debt, and state the amount. 1 mark
Problem 2, Plumber with a tax debt
Riley is a self-employed plumber. He earned $108,400 in gross fees and $720 in bank interest. His allowable deductions total $4,260. Riley does not have PAYG withheld; instead he made quarterly PAYG instalments totalling $22,400.
Set up: What are we solving for?
(i) Calculate Riley's taxable income. 1 mark
(ii) Calculate Riley's income tax, Medicare levy and total tax liability. 3 marks
(iii) Compare the PAYG instalments with the total liability and state whether Riley receives a refund or owes a debt, and by how much. 2 marks
Problem 3, Top bracket, a senior engineer
Dr Patel is a senior engineer with a taxable income of $192,400. Her employer withheld $59,800 in PAYG tax over the year.
Set up: What are we solving for?
(i) Identify the correct bracket and calculate Dr Patel's income tax. 2 marks
(ii) Calculate Medicare levy and total tax liability. 2 marks
(iii) Calculate Dr Patel's effective tax rate (total liability ÷ taxable income × 100), and briefly explain why this is lower than the 45% marginal rate. 2 marks
Problem 4, Bracket boundary, promoted mid-year
Sami had a taxable income of $45,000 last financial year, exactly at the bracket boundary. After a promotion this year, his taxable income is $48,800. His PAYG withheld this year was $8,600.
Set up: What are we solving for?
(i) Calculate Sami's total tax liability (income tax + Medicare levy) on his $48,800 taxable income this year. 2 marks
(ii) Determine whether he receives a refund or owes a debt and state the amount. 1 mark
(iii) Sami's promotion added $3,800 to his taxable income this year (compared with $45,000 last year). Calculate the extra tax (income tax only) on that additional $3,800, and explain in one sentence why the marginal rate of 32.5% applies to the whole $3,800. 2 marks
Problem 5, Comparing two job offers (after tax)
Priya is choosing between two job offers. She wants to know which leaves her with more after-tax income (taxable income minus total tax liability), so she can compare like with like.
Job A: Taxable income of $78,400 per year.
Job B: Taxable income of $86,200 per year.
Set up: What are we solving for?
(i) Calculate Job A's total tax liability and after-tax income. 2 marks
(ii) Calculate Job B's total tax liability and after-tax income. 2 marks
(iii) By how much more does Job B leave Priya after tax compared with Job A? State a clear conclusion sentence. 2 marks
How did this worksheet feel?
What I'll revisit before next class:
Problem 1, Mia's refund
Set up. Identify Mia's bracket, calculate income tax and Medicare levy, sum to total liability, then compare against PAYG.
(i) $74,200 in $45,001 – $120,000 bracket. Income tax = $5,092 + 0.325 × ($74,200 − $45,000) = $5,092 + 0.325 × $29,200 = $5,092 + $9,490 = $14,582.00.
(ii) Medicare = $74,200 × 0.02 = $1,484. Total liability = $14,582 + $1,484 = $16,066.00.
(iii) PAYG $16,250 > liability $16,066 → refund of $184.00.
Problem 2, Riley's tax debt
Set up. Gross income minus deductions gives taxable income; apply brackets and Medicare; reconcile against PAYG instalments.
(i) Gross = $108,400 + $720 = $109,120. Taxable income = $109,120 − $4,260 = $104,860.
(ii) $104,860 in $45,001 – $120,000 bracket. Income tax = $5,092 + 0.325 × ($104,860 − $45,000) = $5,092 + 0.325 × $59,860 = $5,092 + $19,454.50 = $24,546.50. Medicare = $104,860 × 0.02 = $2,097.20. Total liability = $26,643.70.
(iii) PAYG $22,400 < liability $26,643.70 → tax debt of $4,243.70. (Conclusion sentence essential for the second mark.)
Problem 3, Dr Patel, top bracket
Set up. $192,400 is in the top bracket, apply base + 45% on the excess above $180,000.
(i) $192,400 in $180,001+ bracket. Income tax = $51,667 + 0.45 × ($192,400 − $180,000) = $51,667 + 0.45 × $12,400 = $51,667 + $5,580 = $57,247.00.
(ii) Medicare = $192,400 × 0.02 = $3,848. Total liability = $57,247 + $3,848 = $61,095.00.
(iii) Effective rate = $61,095 ÷ $192,400 × 100 ≈ 31.8%. This is lower than 45% because the 45% rate only applies to the $12,400 of income above $180,000, the lower portions are taxed at 0%, 19%, 32.5% and 37% respectively, dragging the average down.
Problem 4, Sami's promotion at the bracket boundary
Set up. Calculate this year's liability, reconcile, then isolate the marginal effect of the extra $3,800.
(i) $48,800 in $45,001 – $120,000 bracket. Income tax = $5,092 + 0.325 × ($48,800 − $45,000) = $5,092 + 0.325 × $3,800 = $5,092 + $1,235 = $6,327. Medicare = $48,800 × 0.02 = $976. Total liability = $7,303.00.
(ii) PAYG $8,600 > liability $7,303 → refund of $1,297.00.
(iii) Extra income tax on the $3,800 = 0.325 × $3,800 = $1,235.00. The entire $3,800 sits above the $45,000 threshold, so every dollar is taxed at the 32.5% marginal rate, none of it is at the lower 19% rate.
Problem 5, Comparing two jobs after tax
Set up. Compute total liability for each job, subtract from taxable income to get after-tax income, then compare.
(i) Job A ($78,400). Income tax = $5,092 + 0.325 × ($78,400 − $45,000) = $5,092 + 0.325 × $33,400 = $5,092 + $10,855 = $15,947. Medicare = $78,400 × 0.02 = $1,568. Total liability = $17,515. After-tax income = $78,400 − $17,515 = $60,885.00.
(ii) Job B ($86,200). Income tax = $5,092 + 0.325 × ($86,200 − $45,000) = $5,092 + 0.325 × $41,200 = $5,092 + $13,390 = $18,482. Medicare = $86,200 × 0.02 = $1,724. Total liability = $20,206. After-tax income = $86,200 − $20,206 = $65,994.00.
(iii) Difference = $65,994 − $60,885 = $5,109. Job B leaves Priya $5,109.00 better off after tax per year. (The extra $7,800 of taxable income generates only $5,109 of extra after-tax income because the additional dollars are all taxed at 32.5% income tax + 2% Medicare = 34.5%.)