How Much Will Income Tax Rates Go Up Between 2010 and 2012?

36% Bracket $212,301 - $379,150 $174,401 - $379,150

39.6% Bracket Over $379,150 Over $379,150

How is income tax is calculated

Understanding how income is taxed is significant. The way it works is that let's say you are an individual who is filed to be single, but make less than $34,500. But one day, you happen to get a raise and pass that. Essentially, everything between $8,501 - $34,500 will be taxed 15% and everything you make over will $34,500 will be taxed 28%. In other words, there is no avoiding taxes unless you prioritize on opportunities on tax deductions like donating to a good cause. If you do choose to donate to a charity for means of reducing your existing tax expenses, it is recommended to do it on the first of January to ensure nothing unexpected happens and all decisions are final.

Things to look out for

Many people heard of the movement titled, "Making Work Pay" where workers get compensated an additional 2% to their income. That is, if they work. Some things to watch out for is individuals relying on that 2% because if an individual all of a sudden is short of income, it can translate to be a loss much more than ususal. Programs like these should be taken into consideration to help avoid shortcomings before they even happen.

Indeed, taxes are no fun but it is an unavoidable circumstance with the way we live. Tell us what you think about these newly introduced tax brackets for 2011 and what course of action you think should be happening regarding the new tax policies.

1st July 2010 starts a new financial year in Australia. With the new year, a new reduced rates of income tax is has been implemented by the Government. The following savings are a sample of what can be expected, the major beneficiaries are the middle income earners as you can see from the amounts below.

$600 per week the savings are $2.00

$900 per week the savings are $8.00

$1,200 per week the savings are $7.00

For the low income earners the low income tax offset has increase to $1,350 from $1,200, this means that the taxpayer can have extra earnings of $1,000 with out effecting their tax payable.

The new tax brackets are set out below for the 2011 financial year.

Taxable income Tax on this income

$1 - $6,000 Nil

$6,001 - $37,000 15c for each $1 over $6,000

$37,001 - $80,000 $4,650 plus 30c for each $1 over $37,000

$80,001 - $180,000 $17,550 plus 37c for each $1 over $80,000

$180,001 and over $54,550 plus 45c for each $1 over $180,000

The above rates do not include the Medicare levy of 1.5%, which is subject to income thresholds. Nor does it include any income tax offsets, these apply to the taxpayers individual circumstances.

There is a common misconception that as you move into a higher tax bracket, all of your earnings are taxed at the higher tax rate, thankfully this is not the case, only the income above the tax bracket is taxed at that rate.

Using the chart above if your income was $85,000, only $5k would be taxed at 37% not the full $85k.