Gross pay is what you earn; net pay is what is left after tax and other deductions. Taxable income is income minus deductions, and tax is read from a printed table or rule. Leave loading adds 17.5% to the normal pay for leave.
The steps, on one like it
Omar's income is $48200 with $1700 of deductions. Tax: none on the first $16000, then 30c for each $1 over $16000. How much tax must Omar pay?
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Taxable income: $48200 - $1700 = $46500.
Deductions come off the income before any tax is worked out.
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Dollars over the tax-free amount: $46500 - $16000 = $30500.
Only the part above $16000 is taxed.
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Tax: 30c on each of those dollars, so $30500 × 0.30 = $9150.00.
30c is $0.30, charged on every dollar above $16000.
Answer: $9150.00
The mistake people often make
Taxing the whole income: $46500 × 0.30 = $13950 also charges tax on the first $16000, which is tax-free.
Take the start of the band away first. The rate applies only to the dollars above where the band starts.
Another way to see it
Picture taxable income as a bar in two parts. The first $16000 is a tax-free block. The rest, $30500, is the taxed block, and every dollar in it pays 30c, so the tax is $9150.00. A payslip works the same way: net pay is gross pay minus the tax withheld and any other deductions.
Words to know
- taxable income
- income minus allowable deductions; tax is worked out on this
- leave loading
- an extra 17.5% of normal pay for the weeks of annual leave
- net pay
- the pay left after tax and other deductions come out