Why your tax refund might be less in 2023
We have been speaking to clients over the past few months about why their tax refunds might be less this year. I have also been interviewed for various news articles and stories on this topic as well as Tiktok going crazy so we thought we would put together something we can send out to our valued clients and associates with all of the info together in one blog post.
Please take the time to read this so that you can understand why your refund (if any) might be less this year.
In the past few years low to middle income earners have been getting larger than usual refunds and that is due to the "Low and Middle Income Earner Tax Offset." This offset was as follows:
Unfortunately this offset ended last financial year, it was originally introduced in the 2019 financial year and then extended due to Covid. It was also increased by $420 (a one-off $420 cost of living tax offset) for the 2021–22 income year which gave an additional boost most peoples tax refunds last financial year.
The working from home fixed rate method also reduced this financial year from 80c to 67c per hour which will also reduce your refund this year if you were/are claiming it.
How tax works
Contrary to most people's understanding of tax, if you are taxed correctly throughout the year on your salary or wage income and do not have any other income or deductions then generally you shouldn't be needing to pay any tax or getting a refund.
You may get a small refund if you are a low income earner who earns under $45K due to the low income tax offset which can be up to $700. If your taxable income is under the tax threshold of $18,200 then you would usually get all of your tax back.
Unfortunately thanks to the media it has become the majority of people's expectation that when they will do their tax return they automatically get a refund.
There are many other factors that come into play as to whether you get a tax refund as follows:
- The average persons tax rate is approx. 20-30% which means for every $1 you spend at Officeworks etc to get your tax deduction you are actually only getting 20-30c in the dollar back. You might not even get it back in an actual refund, it might reduce the tax you need to pay.
- Study or training support govt loans that need to be repaid once you hit the income threshold of $48,361 for the 2023 financial year. We recommend checking with your employer that you have ticked the correct box on your TFN declaration form so that this can be repaid during the year. Rates here.
- If you are a single earning over $90K and you do not have private health hospital insurance you will need to pay the Medicare Levy Surcharge which can be 1-1.5% of your income (not to be confused with the medicare levy that everyone pays which is 2% of your taxable income). More info here on family income etc. If you are lodging your own tax return early (before 31 July) double check if your private health hospital cover has pre-filled into your tax return, if not you may be paying the Medicare Levy Surcharge in error.
- If you are a single earning over $90K and you have private health hospital insurance but you have claimed the wrong rebate tier for your taxable income on your insurance policy you will need to pay an additional amount. We recommend calling your private health hospital insurer to update this for the 2024 financial year. More info here.
- If you get bonuses or pay rises during the year that can affect the overall tax position as the tax tables calculate your tax each pay cycle assuming you get the same amount each pay.
- You also pay tax on any additional income such as interest, dividends, crypto profits or sole trader income so if you haven't paid any tax on this during the year you might find yourself with a tax bill at tax time. We recommend speaking with an accountant when you first earn this income so that you can plan and put this money aside.
- If you have more than one job you can only claim the tax free threshold once so double check with your employers that you have not ticked the box with more than one employer on your TFN declaration form.
If you have any questions please call 02 9030 0269 or email email@example.com.
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