A refund is a reconciliation, not a separate bonus

PAYG withholding is tax sent to the Australian Taxation Office during the year through payroll. The final return calculates tax from actual annual income, deductions, offsets and liabilities, then compares that amount with withholding and other credits. If credits exceed the liability, the difference is an estimated refund. If liability exceeds credits, the difference is an estimated amount payable.

A larger refund does not necessarily mean lower tax. It can mean more was withheld during the year. Likewise, an amount payable may arise because income without withholding was added, two employers each used the tax-free threshold, investment income was untaxed, or an additional liability applies. Compare liability with credits before deciding whether the outcome is favourable.

Worked example using the default entries

Employment income of $90,000 plus $5,000 other taxable income and $3,000 deductions produces taxable income of $92,000. The 2026–27 resident rates calculate $18,120 income tax before offsets. LITO is zero at this income. The simplified 2% Medicare levy is $1,840, making total estimated liability $19,960. With $21,500 PAYG withheld, the estimated refund is $1,540.

Changing only withholding changes the refund, not the income-tax calculation. If withholding were $18,500, the same return would show $1,460 payable. Changing deductions affects taxable income and can alter both income tax and Medicare levy; it does not return the deduction amount dollar for dollar.

Resident tax rates used for 2026–27

This page uses the Australian resident individual rates legislated for income earned from 1 July 2026. The first $18,200 is tax free, the next band to $45,000 is taxed at 15%, income from $45,001 to $135,000 at 30%, income from $135,001 to $190,000 at 37%, and income above $190,000 at 45%. Each rate applies only to income in that band, not the entire taxable income.

The rates exclude the Medicare levy and Medicare levy surcharge. They also assume full-year Australian residency for tax purposes. A foreign resident or working holiday maker uses different rates, and a person who became or ceased to be a resident during the year can have a part-year tax-free threshold. Tax residency is a legal test and is not decided only by citizenship or visa label.

Low Income Tax Offset is applied automatically

LITO is a non-refundable offset. The maximum is $700 when taxable income is $37,500 or less. It reduces by 5 cents for each dollar between $37,500 and $45,000, leaving $325 at $45,000. It then reduces by 1.5 cents per dollar and reaches zero at $66,667. Because it is non-refundable, it can reduce income tax to zero but cannot by itself create a refund or reduce the Medicare levy.

The separate offsets input is also treated as non-refundable and applied only after calculated LITO. If entered offsets exceed the remaining income tax, the unused amount is not added to credits. Actual offsets have their own eligibility, transfer and ordering rules, so confirm the label on the tax return before combining them.

The Medicare levy estimate is deliberately narrow

For a single individual in 2026–27, the ordinary low-income threshold is $28,011. This model applies no levy at or below that amount. Between $28,011 and the phase-in limit, it applies 10 cents for each dollar above the threshold. From $35,013 it applies 2% of taxable income. Selecting a full-year exemption sets the levy to zero.

Medicare levy calculations can use family income thresholds, spouse income, dependant children, pensioner eligibility and exemption days. A married person or sole parent with low family income may receive a different reduction. Partial exemption can apply for only part of a year. The calculator does not infer any of those facts, so its standard option should not be used as a family levy worksheet.

Study and training loan repayments are additional liabilities

Compulsory HELP, VSL, SSL, ABSTUDY SSL and related repayments are based on repayment income, which can differ from taxable income. Reportable fringe benefits, net investment losses, reportable super contributions and exempt foreign employment income can enter that measure. This page does not ask for all those components. Use the ATO’s current study-loan calculation and enter the result as an additional liability rather than multiplying taxable income by a guessed percentage.

Classify income and deductions before entering totals

Employment income can include salary and wages, allowances, commissions, bonuses, director fees and some termination amounts, but special payments may have different tax treatment. Other income may include bank interest, dividends, managed fund distributions, business income, rental income, foreign income and the net capital gain from a separate CGT calculation. Enter taxable amounts, not simply cash received.

For dividends, franking credits can be assessable income and also a tax offset or refundable credit. Managed fund statements can contain several tax components. Rental income should be combined with allowable rental deductions under the relevant rules rather than entering gross rent as a final taxable amount. Foreign income can require currency conversion and a foreign income tax offset calculation.

Deductions must have the required connection with earning assessable income and must not be private, capital or reimbursed unless a specific rule allows them. Work-from-home expenses, vehicle use, tools, uniforms, self-education, gifts, investment costs and tax-agent fees each have evidence and calculation requirements. A bank transaction proves payment but not necessarily deductibility.

Keep withholding separate from income

An income statement usually reports both gross taxable payments and tax withheld. Put the gross taxable amount in employment income and withholding in PAYG withheld. Entering net take-home pay understates income, while subtracting withholding as a deduction counts the credit incorrectly. Multiple jobs and payroll changes make this separation particularly important.

Why an ATO assessment can differ

The ATO’s myTax estimate draws on the complete return and account information. It can include offsets, levies, private health insurance adjustments, study-loan repayments, PAYG instalments, franking credits and other amounts this compact page does not collect. The ATO may also amend pre-fill data or apply rounding and legislative rules at assessment.

The result can be wrong if an amount belongs in another tax year. Salary is generally reported through the income statement for the financial year, while capital gains usually depend on the CGT event date and business income can follow specific accounting rules. Do not move income or deductions between years merely to match withholding.

Use this calculator early enough to identify records or an expected shortfall, then complete the official return or give complete information to a registered tax agent. Save the reconciliation with its 2026–27 label because thresholds and rates change. If the return includes a business, trust, foreign interests, employee share schemes, cryptocurrency, property sale, residency change or deceased estate, professional advice may be proportionate to the risk.