Practice Maths

Earning Income and Taxation

Key Terms

Wage
paid per hour worked. Total pay = hours × hourly rate.
Overtime
hours beyond standard (usually 38 hrs/week). Time-and-a-half = 1.5 × hourly rate. Double time = 2 × hourly rate.
Salary
fixed annual amount, paid in regular instalments (fortnightly or monthly).
Commission
pay based on sales. Total = base salary + commission rate × sales value.
Piecework
pay per item produced or task completed.
Gross income
total earnings before deductions.
Net income (take-home pay)
gross − income tax − Medicare levy − other deductions.
Medicare levy
2% of taxable income (for most taxpayers).
PAYG withholding
employer withholds income tax from wages and sends to the ATO.
Tax brackets (simplified)
different tax rates apply to different income ranges. Higher income → higher rate on that portion only (progressive tax).
Key Formulas
• Overtime pay (time-and-a-half) = overtime hours × 1.5 × hourly rate
• Overtime pay (double time) = overtime hours × 2 × hourly rate
• Weekly wage = standard hours × rate + overtime hours × overtime rate
• Annual salary ÷ 52 = weekly pay     Annual salary ÷ 26 = fortnightly pay
• Commission = commission rate × value of sales
• Medicare levy = 2% × taxable income
• Net pay = gross pay − income tax − Medicare levy − other deductions
Taxable Income Tax on this income
$0 – $18 200Nil
$18 201 – $45 00019c 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
Over $180 000$51 667 + 45c for each $1 over $180 000

Visual: How gross pay breaks down into net pay

Gross Pay: $1 200/week Net pay $952 Tax $200 Med $48
Hot Tip When reading a tax table, remember that only the income within each bracket is taxed at that bracket's rate. For example, if you earn $50 000, you do NOT pay 32.5% on the full $50 000 — you pay 0% on the first $18 200, 19% on the next $26 800, and only 32.5% on the last $5 000. This is a progressive tax system.

Worked Example 1 — Calculating weekly wage with overtime

Question: Jasmine earns $28.40/hr. She works 38 standard hours plus 4 hours time-and-a-half and 2 hours double time. Find her gross weekly pay.

Standard pay: 38 × $28.40 = $1 079.20

Time-and-a-half: 4 × 1.5 × $28.40 = 4 × $42.60 = $170.40

Double time: 2 × 2 × $28.40 = 2 × $56.80 = $113.60

Gross weekly pay: $1 079.20 + $170.40 + $113.60 = $1 363.20

Worked Example 2 — Net income from tax table

Question: Ben earns a taxable income of $68 000. Use the tax table to find his income tax, Medicare levy, and net income.

Tax: $68 000 is in the $45 001–$120 000 bracket.

Tax = $5 092 + 0.325 × ($68 000 − $45 000) = $5 092 + $7 475 = $12 567

Medicare levy: 2% × $68 000 = $1 360

Net income: $68 000 − $12 567 − $1 360 = $54 073

Types of Income: Wages vs Salaries

Most working Australians are paid in one of two main ways. A wage earner is paid per hour actually worked — if you work more hours, you earn more money; if you don't work, you don't get paid. A salary earner receives a fixed annual amount regardless of how many hours they actually work in a given week. Salaries are typically divided into fortnightly or monthly payments.

Neither system is strictly better — wages reward extra hours directly, while salaries provide predictability. Many professional roles (teachers, nurses, accountants) are salaried because their workload varies and cannot easily be reduced to a simple hourly count.

Overtime kicks in when a wage earner works beyond the standard hours (usually 38 per week under Australian awards). Two common overtime rates are:

  • Time-and-a-half: each overtime hour is paid at 1.5 × the normal rate. If your base rate is $30/hr, overtime pay is $45/hr.
  • Double time: each overtime hour is paid at 2 × the normal rate — $60/hr in the above example.

PAYG Tax — How the Tax System Actually Works

Australia uses a Pay As You Go (PAYG) withholding system. Instead of receiving your full gross wage and then paying a lump-sum tax bill at the end of the year, your employer calculates an estimated tax each pay period and sends that amount directly to the Australian Taxation Office (ATO) on your behalf.

At the end of the financial year (30 June), you lodge a tax return. The ATO compares the tax actually withheld throughout the year to your true tax liability based on total annual income, deductions, and offsets. If too much was withheld, you receive a tax refund. If too little was withheld (for example, because you worked multiple jobs), you pay the difference.

This system prevents the awkward situation of workers being hit with a large tax bill they cannot afford. The PAYG withholding is calculated from published ATO tax withholding tables — and is the "income tax" figure you see deducted on every payslip.

Australian Tax Brackets — Progressive Taxation Explained

Australia uses a progressive tax system, which means different portions of your income are taxed at different rates. The key word is marginal — your tax bracket is the rate applied to the last dollar of income you earn, not to all of your income.

Consider someone earning $50 000. Their tax is calculated as follows:

  • First $18 200: $0 tax (tax-free threshold)
  • Next $26 800 (from $18 201 to $45 000): taxed at 19c per dollar = $5 092
  • Remaining $5 000 (from $45 001 to $50 000): taxed at 32.5c per dollar = $1 625
  • Total income tax: $5 092 + $1 625 = $6 717

Although $50 000 falls in the 32.5% bracket, the person does not pay 32.5% on all $50 000 — only on the slice above $45 000. Their actual (average) rate is $6 717 ÷ $50 000 = 13.4%.

Key Concept — Marginal Tax Brackets: A pay rise never leaves you worse off after tax. Moving into a higher tax bracket only means the extra income is taxed at the higher rate, not your entire income. This is one of the most misunderstood aspects of the tax system — many people incorrectly believe a raise could cost them money.

Working Out Take-Home Pay

Your gross income is your total earnings before any deductions. Your net income (take-home pay) is what you actually receive after deductions. The main deductions are income tax and the Medicare levy.

The Medicare levy is an additional 2% of taxable income that funds Australia's public health system (Medicare). It is calculated separately from income tax and added on top. For example, on a taxable income of $60 000, the Medicare levy = 2% × $60 000 = $1 200 per year.

The calculation chain is: Gross income − allowable deductions = Taxable income → apply tax table → add Medicare levy → net income = Taxable income − income tax − Medicare levy.

Allowances and Deductions

A deduction reduces your taxable income before tax is calculated. Common deductions include work-related expenses (tools, uniforms, professional development), home office costs, and union fees. If you earn $75 000 but have $3 000 in legitimate deductions, you only pay tax on $72 000 — lowering your tax bill.

An allowance is an extra payment on top of your base wage to compensate for specific expenses — for example, a meal allowance, vehicle allowance, or tool allowance. Some allowances are taxable income; others are not. Your employer specifies this on your payslip and payment summary.

Common Mistake — Overtime Rate vs Extra Pay: The overtime rate applies to all overtime hours, not just the extra portion. At time-and-a-half on $30/hr, you earn $45/hr for every overtime hour. You don't earn $30/hr and then just a $15 "bonus" — the entire payment for that hour is $45. This matters when calculating gross weekly pay in exam questions.

Mastery Practice

See Answers ➔
  1. Fluency

    Calculate the gross weekly wage for each worker.

    1. (a) Tom works 38 hours at $22.50/hr.
    2. (b) Priya works 35 hours at $31.60/hr.
    3. (c) Sam works 38 hours at $19.80/hr plus 3 hours overtime at time-and-a-half.
    4. (d) Rosa works 38 hours at $26/hr plus 5 hours at double time.
  2. Fluency

    Convert salaries to the required pay period.

    1. (a) Annual salary of $62 400 → weekly pay
    2. (b) Annual salary of $91 000 → fortnightly pay
    3. (c) Annual salary of $54 600 → monthly pay (use 12 months)
    4. (d) Weekly wage of $1 140 → approximate annual income
  3. Fluency

    Calculate commission income.

    1. (a) A real estate agent earns a 2.5% commission on a house sale of $480 000.
    2. (b) A car salesperson earns a base wage of $400/week plus 1.8% commission on sales. They sell $28 000 in cars one week.
    3. (c) A telemarketer earns $4.50 per successful call. They make 65 successful calls in a week.
  4. Fluency

    Calculate the Medicare levy for each taxable income.

    1. (a) $42 000
    2. (b) $78 500
    3. (c) $130 000
  5. Understanding

    Calculate income tax using the tax table above.

    Method: First identify which tax bracket the income falls in. Then apply the bracket formula for that range.
    1. (a) Taxable income: $30 000
    2. (b) Taxable income: $55 000
    3. (c) Taxable income: $145 000
  6. Understanding

    Calculate net income (take-home pay) for each situation.

    Remember: Net income = gross income − income tax − Medicare levy. Use the tax table provided.
    1. (a) Taxable income: $48 000
    2. (b) Taxable income: $92 000
    3. (c) Annual salary of $78 000, with $3 200 in work-related deductions reducing taxable income.
  7. Understanding

    Comparing income types.

    1. (a) Ahmed earns $24.80/hr as a casual worker and works an average of 36 hours/week. Bianca earns a salary of $45 000/year. Assuming 52 weeks of work for Ahmed, who earns more per year?
    2. (b) Marcus is offered either: (i) a salary of $58 000/year, or (ii) an hourly rate of $32/hr for 38 hours/week for 52 weeks. Which is the better offer? By how much?
  8. Understanding

    Piecework and commission problems.

    1. (a) A seamstress earns $3.20 per garment. How many garments must she complete to earn at least $640 in a week?
    2. (b) A salesperson earns a 4% commission on sales plus a $300/week retainer. What weekly sales do they need to earn at least $700/week in total?
    3. (c) A data-entry worker is paid $0.08 per record entered. They enter 940 records on Monday, 1 120 on Tuesday, and 875 on Wednesday. What are their earnings for these three days?
  9. Problem Solving

    Full pay packet problem.

    Challenge. Leila works as a nurse. Her base hourly rate is $34.50/hr for a 38-hour standard week. Any hours between 38 and 46 are paid at time-and-a-half. Hours beyond 46 are paid at double time. One week she works 50 hours.
    1. (a) Calculate her gross weekly pay.
    2. (b) Her gross annual income (assuming this week is typical for 52 weeks) is used as taxable income. Calculate her annual income tax and Medicare levy.
    3. (c) Calculate her annual net income.
    4. (d) What percentage of her gross income does she pay in total tax (income tax + Medicare)?
  10. Problem Solving

    Interpreting a pay slip.

    Challenge. A worker's pay slip shows: Gross pay $1 450, PAYG tax withheld $312, Medicare levy $29, Superannuation $130.50. The superannuation is an employer contribution (not deducted from gross pay).
    1. (a) Calculate the worker's net (take-home) pay.
    2. (b) What hourly rate does the worker earn if this is pay for 38 standard hours plus 3.5 hours at time-and-a-half? (Hint: set up an equation.)
    3. (c) What is the worker's approximate annual gross income?
    4. (d) Use the tax table to verify whether the PAYG tax withheld of $312/week is approximately correct for this income level.