Working Pensioners: How Extra Income Can Impact Your Age Pension and Tax Bill

Working Pensioners: How Extra Income Can Impact Your Age Pension and Tax Bill

For many retirees, giving up work entirely isn’t always the plan. Whether it’s for the social connection, sense of purpose, or simply a bit of extra income, plenty of Age Pension recipients continue to work part-time or casually.

But here’s the catch: even a small amount of extra income can affect your Age Pension payments - and potentially your tax position - in ways that aren’t always obvious. Understanding how these rules interact can help you make more informed choices about how much to work.

The Income-Free Area And The Work Bonus

Every pensioner can earn a certain amount before their Age Pension starts to reduce. This is known as the income-free area.

• For singles, the cost is approximately $212 per fortnight, and for couples, it is around $372 combined per fortnight (as of 2025).

• Once you earn above this amount, your pension payment reduces by 50 cents for every dollar over the threshold.

If you’re still working, the Work Bonus provides a little extra breathing room. It lets you earn up to $300 per fortnight from employment before it counts towards the income test - and you can even build up unused Work Bonus amounts to offset higher earning periods.

So, if you only do a few shifts a fortnight, you may find your pension remains unaffected - but once your income consistently exceeds the threshold, your payment will taper down.

When Extra Income Meets The Tax System

This is where things can get tricky. If your total income (from work, super, or investments) exceeds the tax-free threshold, you may also have to pay income tax.

For seniors, the Senior Australians and Pensioners Tax Offset (SAPTO) can lift your effective tax-free limit to around $33,000 for singles or $29,000 each for couples, but go much higher and you could face both a pension reduction and an income tax bill.

This interaction between the pension taper rate and income tax can create what’s known as a high effective marginal tax rate - meaning for every extra dollar earned, you might lose a large portion to reduced pension and tax combined. It’s one of the main reasons some pensioners limit their hours or shifts.

Here’s A Few Examples

• Claudia, single pensioner: Works one 6-hour shift per week at $30/hour, earning around $360 per fortnight. Thanks to the Work Bonus, most of this income doesn’t reduce her pension.

• Peter and Chloe, a couple: Earn modest investment income plus casual wages. Their combined earnings push them above the income-free area, tapering their pension and nudging them close to the tax threshold.

• Jack, semi-retired contractor: Takes on short-term work that boosts his income significantly some months. Without tracking it, he risks overpayments and a reduced pension rate the following quarter.

Getting The Balance Right

Earning extra income in retirement can be incredibly rewarding - but it’s important to plan ahead so you understand the full picture.

Your accountant can help you:

• Model how extra work might affect your Age Pension and tax position.

• Track and report your income correctly to Services Australia.

• Make the most of available concessions like the Work Bonus and SAPTO.

Before taking on extra shifts or side work, take the time to discuss your options. With a little planning, you can enjoy the best of both worlds - staying active and earning a little extra, without giving too much back in the process.