Festive Season Overtime and Bonuses: What It Means for Your Tax

Festive Season Overtime and Bonuses: What It Means for Your Tax

The festive season often brings more than just holiday cheer. For many Australians, it’s also a time of extra shifts, overtime hours, and sometimes even a Christmas bonus. While that additional income is welcome, it’s important to understand how it affects your tax situation..

Why Seasonal Income Matters

Overtime and bonuses are treated as ordinary taxable income. This means they’re added to your total earnings for the financial year and taxed at your marginal tax rate. The more you earn, the higher the rate of tax that applies to the top portion of your income.

If you’ve picked up extra shifts in December or received a lump-sum bonus, it could nudge you into a higher tax bracket. While this doesn’t mean all your income is taxed at that higher rate, it does mean a larger slice of your extra income could be.

How Withholding Works

Employers are required to withhold tax from overtime and bonuses, but this is based on the ATO’s standard tax tables. Sometimes, the amount withheld is more (or less) than what you’ll ultimately owe once your total income is assessed at year-end. This can result in either a refund or a payable balance when you lodge your tax return.

For bonuses, many employers use special withholding rates set by the ATO. If you’ve noticed that more tax than usual is deducted from your Christmas bonus, that’s likely why-it’s designed to prevent a tax shortfall later.

Tips To Avoid Surprises

• Check Your Year-to-date Income: Keep an eye on whether extra income could push you into a higher bracket.

• Review Your Withholding: If you’re worried about underpayment, you can adjust your PAYG withholding with your employer.

• Plan For Tax Time: Setting aside a small portion of your extra income now can help smooth things out later.

Seasonal overtime and bonuses are excellent rewards for hard work throughout the year. By understanding how they’re taxed, you can enjoy the extra income without any unwelcome surprises when tax time rolls around.

Want to make sure you’re avoiding a festive season surprise when it comes to your tax obligations? Why not book a time with one of our trusted team and start a chat with us to find out how we can help?