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The Myth of the High Tax Bracket Due to Overtime Work and Extra Shifts

July 1, 2022

Declining Extra Shifts and Overtime Work because of Higher Taxes?

Is overtime taxed more? Should you decline overtime or extra nursing shifts to save money? Find out all about this in our Tax Time Series’s last and final part. 

Is Overtime Taxed More?

You might be working overtime or accepting night shifts and wonder if you would get pushed to the next tax bracket and therefore, be taxed more, and earn less. This is just not true! This assumption could lead you to decline extra shifts and overtime work. We explain the tax process through an example which would make it clear. Keep reading to find out more.

The Benefits of Progressive Tax Rate

Australia has a progressive tax rate, which means your average tax rate is much lower than the marginal rate. The average tax rate is the amount of tax paid divided by the income, while the marginal tax rate is the tax you pay for every additional dollar earned as income. So, just because another source of income bumps you into the next tax bracket doesn’t mean all of your income is now taxed at that higher rate.

So what does that actually mean? Simply, if you earn an additional $10,000 in overtime work or pick up extra shifts and you move to the next tax bracket, only a part of your income will be taxed at a higher rate.

For example, Grace is a Level 4 Registered Nurse in the ACT. She is single and has no dependents. She works full-time in a mid-sized private hospital. Her salary is $80,000 per annum, excluding 10% super.

At the end of the year, when calculating her taxes, the ATO will split her salary as follows: $18,200 taxed at 0%; $26,800 ($45,000-$18,200) taxed at 19%; and $35,000 ($80,000-$45,000) taxed at 32.5%. See the new 2022-2023 marginal tax rate table below.

Grace loves travelling and wants to save some extra money for her trip. London and Thailand have been on her wishlist for years. To achieve that goal, she picks up an extra 12-hour shift every week through uPaged. She earns an additional $40,100 through this work. This additional amount brings her total assessable income to $120,100. This income pushes her up to the next marginal tax rate bracket, $120,001 – $180,000 (see table above). However, this doesn’t mean that her entire salary will be taxed at 37%.

In fact, only the additional $100 will be taxed at 37%. 

Therefore, because of Australia’s progressive tax rate and the extra work made available through uPaged, Grace actually gains $27,063 after tax. That’s a lot of lettuce!

This year, Grace is using that money to pay for a 4-week trip to London and will be enjoying a 5-day stay at a glitzy spa hotel on Koh Samui in Thailand on her way home 🏖 

So. essentially, you still get more money in hand, and you would get still be likely to get a tax refund at the end of the year. And it’s always great to get a refund at the end of the year, right? Remember, every dollar counts!

(Oh, and here’s our disclaimer–we’re not accountants—so you really need to check with yours to find out exactly what, and how much, you can claim). Need an accountant who specialises in tax for Nurses? Email us at hello@uPaged.com and we’ll connect you with our favourites.

References

https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Occupation-and-industry-specific-guides/Nurses-and-midwives—income-and-work-related-deductions/

 

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