As tax season approaches, many Australians are shocked and angry, not because they are getting refunds, but because they have to pay a lot of taxes. People generally feel relieved and get money back when they file their taxes, but this year, more and more people are discovering out they owe money. Young Australians are complaining more and more, and it’s even made its way to social media. TikTok videos are pouring in where taxpayers talk about the shock and emotional damage of having to pay off big tax debts.
This blog will talk about why tax debts continue to pile up in Australia, the main mistakes people are making, and how to avoid getting these bills in the future.
1. Why do so many Australians owe taxes this year?
Australians look forward to getting their tax refunds every year before tax season. But this year, things have been very different. Many people who quickly filed their taxes expecting a refund instead got a bill.
Here are some complaints that people have posted on social media:
- Kenneth: After spending hours on his tax return, Kenneth learned that he owed the Australian Tax Office (ATO) $4,000.
- A nurse: He got a tax bill for $3,404, which made him even more upset and shocked.
- Elaya: She thought she would get a refund, but she ended up owing $1,733.
- Kristy, a 21-year-old from Queensland, got a bill for $32,459, which was a big shock even though she made a good living.
For a lot of people, these tax debts are hard to deal with because they weren’t expecting to have to pay so much. There are many reasons why such disappointments happen, which are listed below.
2. Having more than one job and payroll problems
One big reason why tax bills have gone up this year is that many Australians are working more than one job, which has caused a lot of confusion about tax-free thresholds and the way much tax is being taken out of paychecks.
- Tax-free threshold: Australians can only claim the $18,200 tax-free threshold for one job. People who have more than one job need to tell their employers that they won’t be claiming the threshold. If you don’t do this, the extra money will be taxed at a higher rate.
- High-income bracket: If an individual’s combined income from multiple jobs exceeds the threshold, their tax bill increases significantly. Despite correctly reporting income from secondary jobs, payroll systems still struggle to account for the full tax obligation.
Because tax systems aren’t made to handle multiple sources of income easily, many Australians have gotten bills they didn’t expect at the end of the financial year.
3. What HECS-HELP debts do to you
The HECS-HELP repayment system is another big reason why people owe taxes they didn’t expect. Many Australians fail to realise that:
- If their total income from more than one job is higher than the HECS-HELP repayment limit, they will have to make payments. If these payments weren’t taken out automatically, the person could end up with a big tax bill all of a sudden.
- Threshold: The current HECS-HELP repayment threshold is $56,156. If someone makes more than this amount of money but hasn’t been making regular payments from each job, they may be in debt.
This problem is especially common among younger Australians who may have gotten a second job, which raised their taxable income, but didn’t tell their employers about their HECS-HELP obligations.
4. Salary Sacrifice and Other Benefits
People often talk about salary reduction plans as a way to save money on taxes, but they can actually cause problems with taxes, especially when it comes to reportable fringe benefits.
- When people sign up for salary sacrifice plans or novated leasing plans, their reportable perks are “grossed up” by 1.88 times. This gross-up process can change how much you owe in HECS-HELP payments.
- Paying out HELP debt early: Even though people aren’t technically paying more in taxes, the grossed-up fringe benefits mean they have to pay off their HELP debt earlier than they thought.
This makes things harder for a lot of people because they might not realise the extra work until it’s time to file their taxes.
5. Possible Future Risks of Tax Debts
Belinda Raso, a tax agent at Tax Invest Accounting, has said that Australians who owe taxes this year are likely to have the same problems in the future if they fail to deal with the root causes. Some of these causes are:
- Not telling employers about the tax-free threshold: People who have multiple employment opportunities need to make sure they tell each employer about the tax-free threshold so they don’t end up with surprise tax debts.
- HECS-HELP repayments: People who don’t keep track of their total income and tell their employers about their repayment obligations will still owe taxes in the years to come.
Australians should take steps to avoid getting into debt, such as making sure that all of their income is reported correctly and that tax-free thresholds are used correctly.
6. How to Stay Out of Tax Debt
There are a few things people can do to avoid being shocked by tax debts in the future:
- Tell your employers: Make sure that all of your employers know about the tax-free threshold, especially if you have more than one job.
- Keep an eye on your combined income: Make sure you stay within your tax brackets by keeping track of all your sources of income and making changes as needed.
- Keep an eye on your HECS-HELP repayments: Check your HECS-HELP repayments often, especially if your combined income is higher than the repayment threshold.
- Get professional help: If you’re not sure what to do, talk to a tax agent to help you understand your complicated tax obligations and avoid surprise bills.
- Learn about salary sacrifice plans: Before you agree to a salary sacrifice or novated lease, make sure you know how it will affect your finances, especially when it comes to paying back your HECS-HELP loans.
7. The End
Many Australians, especially younger workers who may not have known about the details of multiple job tax rates, HECS-HELP repayment obligations, and salary sacrifice schemes, were taken aback by the rise in tax debts this year. But people can better handle their tax returns and avoid big debts in the future by learning about these problems and taking steps to fix them.
It can be hard for you to figure out how to manage taxes in Australia, particularly if you have more than one source of income or student loan debt. To avoid getting an unexpected tax bill, you need to stay up to date and do the right stuff.
