Are you sure you’re paying the right amount of tax?
With the new tax cuts now in effect, you might be giving away more of your income than you need to.
The government made significant changes to individual income tax rates from July 2024. But have you seen the impact on your paycheck?
Let’s break down the new rules so that you can figure out if you are making the most out of these changes or not.
What’s Officially Changed from July 2024?
If you’ve been keeping up with the news, you probably heard that the government had big plans for tax cuts this year. Well, as of July 1, 2024, those changes are no longer just announcements; they’re law. So, here’s what’s now official:
- The 19% tax rate has been reduced to 16%.
- The 32.5% tax rate has dropped to 30%.
- The income threshold where the 37% tax rate kicks in has been raised from $120,000 to $135,000.
- The income threshold for the 45% tax rate has increased from $180,000 to $190,000.
What does this mean? In simple terms, if you’re earning anywhere between $45,000 and $190,000, you’re likely to see a little less tax deducted from your pay each month.
How These Changes Affect You
Let’s look at some examples to make this clearer. Say you’re earning $60,000 a year. Previously, you were paying 19% on income between $18,201 and $45,000 and 32.5% on anything above that. But now? You’ll only pay 16% on that first portion and 30% on the rest, thanks to the updated individual income tax rates.
The result? You could be saving a few hundred dollars across the year (nothing massive, but definitely noticeable). Think of it as extra money for those weekend plans or a little more padding in your savings account.
Now, let’s say you’re earning $150,000. You were being taxed at 37% on anything over $120,000, but now that 37% threshold doesn’t kick in until you earn more than $135,000. The drop in the 32.5% rate to 30% also means a little less tax throughout the year.
That could mean extra savings, paying off debts quicker, or even treating yourself to that holiday you’ve been putting off.
What If I’m Earning Less?
It’s easy to assume that these cuts mainly benefit higher earners, but even if you’re earning between $18,201 and $45,000, the drop from 19% to 16% could leave you with some extra cash.
For example, if you’re on the lower end of that bracket, the savings may be modest, perhaps around $270 a year.
It might not be enough to retire early but let’s be honest, every little bit helps. Whether it goes towards groceries, a night out, or your emergency fund, it’s money that stays in your pocket instead of the government’s.
And for those earning below $18,200? You’re still enjoying the tax-free threshold, meaning no income tax for you at all. Not a bad place to be.
Isn’t a Tax Cut the Same as a Refund?
This is where some confusion creeps in.
You might hear the term “tax cut” and think, “Great! I’ll get a refund at tax time.” But a tax cut isn’t the same thing as a refund. A tax cut reduces the amount of tax you owe throughout the year, so you end up paying less tax to begin with.
Think of it this way: A tax refund is like getting money back after paying too much at the register, while a tax cut is like getting a discount and paying less upfront.
Both are good news, but they work differently.
Why Should You Pay Attention to These Changes?
Now, you might be thinking, “This is all great, but I don’t really need to do anything, right?” Well, that depends. While your employer’s payroll system should automatically adjust for these income tax rates 2024, being aware of the changes could help you in other ways.
If you’re in a position to negotiate your salary, for example, knowing these thresholds could guide your decisions. You might find that a pay rise that pushes you into a higher tax bracket isn’t as beneficial as you’d thought or that a bonus is taxed less than expected.
Staying informed gives you the power to make smarter financial moves.
What’s the Risk of Ignoring These Changes?
Let’s be honest—most of us don’t pay close attention to our individual income tax rates and thresholds. It’s easy to look at your payslip, shrug, and move on. But not understanding how these cuts affect you could mean missing out on opportunities to save, invest, or even plan better for retirement.
You could find yourself overpaying or underutilising the new rates, especially if you have fluctuating income, bonuses, or other sources of taxable income.
Imagine realising at the end of the financial year that you could’ve saved hundreds, simply by understanding how your income interacts with these new thresholds. It’s frustrating, right?
Why These Changes Matter
Even if these tax cuts don’t seem like a big deal to you right now, the truth is that over time, those savings can add up. Whether it’s putting a little extra into your savings each month or reducing your overall debt, this is money that stays with you.
And when the cost of living seems to be rising faster than our paychecks, having a little more in your pocket each month can make a real difference.
Think about it this way: every bit of tax you don’t pay is money you can allocate toward something meaningful in your life. That could be saving for a home, investing in your future, or simply having the flexibility to spend on things that bring you joy. So, why not pay attention?
What Should You Do Now?
So, what’s the takeaway here? Whether you’re earning $30,000 or $200,000, these changes matter. They’re not going to make you rich overnight, but they will give you a bit of extra breathing room. And when it comes to your finances, every little bit helps.
Keep an eye on your payslips over the coming months. Check to see how much tax is being taken out now compared to before July 2024. You might notice you’re paying less tax each pay cycle, and while it may not seem like a huge amount, it adds up.
Remember, staying informed puts you in control. The next time you look at your bank account, consider this: Are you making the most of the new tax cuts? Or could you be missing out on extra savings just because you didn’t know?
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