Australians should begin seeing major tax cuts in their pay by November as the Australian Tax Office (ATO) puts the pressure on employers to begin updating their payroll systems.
The ATO said it has updated the tax withholding schedules in line with the tax cuts announced in the 2020 Budget, telling employers that the time has come for them to change their payroll systems.
“Employers now need to make adjustments in their payroll processes and systems in order for the tax cuts to be reflected in employee’s take-home pay,” the ATO said in a statement.
“Employers must make sure they are withholding the correct amount from salary or wages paid to employees for any pay runs processed in their system from no later than 16 November onwards.”
The tax office said it understands some businesses will face a more complex task when it comes to updating their payroll systems.
As such, some workers will see the tax cuts in days and others within weeks.
What will you get from the tax cuts?
Around 11 million Australians are expected to see some benefit from the tax cuts. The cuts, which were originally scheduled for July 2022, were brought forward to come into place immediately as Australia battles the Covid-19 recession.
The tax cuts will also be backdated to 30 July 2020, although excess tax already paid won’t be refunded until the end of the financial year.
These are the changes:
The low income tax offset increases from $445 to $700;
The top threshold of the 19 per cent tax bracket increases from $37,000 to $45,000; and
The top threshold of the 32.5 per cent tax bracket increases from $90,000 to $120,000.
Low- and middle-income earners receive another $1,080 tax offset.
Here’s a breakdown of how it will work for you:
If you earn up to $40,000, you’ll save up to $1,060
If you earn more than $40,000, up to $80,000, you’ll save up to $$2,160
If you earn more than $80,000, up to $100,000, you’ll save up to $2,445
If you earn more than $100,000, up to $120,000, you’ll save up to $2,745
If you earn more than $120,000, up to $200,000, you’ll save up to $2,565
However, the tax cuts haven’t been welcomed by all. According to analysis from The Australia Institute, the cuts have a “perverse outcome” of seeing low- and middle-income workers actually pay more tax in 2021, while rewarding high income earners more than low-income earners.
The National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra also found that some families will see benefits as much as 10 times greater than others.
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