Foreign Currency

The salary calculator you need for Australia

by Admin

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The idea of working in Australia is a dream for many Britons and a reality for many more. Naturally though, the employment system – and more importantly, the wage payment system – is not always the same as that in the UK. In some cases, it’s just a matter of terminology, but in other areas it is more substantial.

However, thanks to one of the most popular and trusted finance organisations in Australia, figuring out what you can expect in your pay packet when you work Down Under, has been made a whole lot easier.

The Industry Super group (more about them later) recently added a simple, reliable salary calculator to their website. Its simplicity reflects the streamlined wage system in Australia and takes into account current tax rates – including whether you’re a resident or a visitor – and the Medicare Levy, as well as providing an estimate of the minimum superannuation (pension) payment from an employer. Let’s look at this one first.

 Superannuation

In Australia, the two main sources of income an employee can expect in retirement are the government age pension (much like the UK State Pension) and payments from their ‘superannuation’ (similar to our occupational or personal pensions).

By law, all businesses must make contributions to their employees’ superannuation (pension) account. This is called the Superannuation Guarantee, and currently, employers must contribute at least 9.5% of an employee’s wage on top of their salary. It is compulsory and cannot be bargained out of.

The theory is that businesses make regular payments into the fund, and when it comes time to retire, the worker has a healthy nest egg waiting for them, since super can’t be touched early and all funds try and achieve a good return on investment for their account-holders.

Every full-time and part-time employee is eligible for super, as are casual workers who are 18 years or over and earning more than $450 in a single calendar month. (The same rules apply for casuals under 18 who work more than 30 hours per week). This means that even those on a working holiday can be entitled to super.

There are two main types of super fund in Australia.

‘Retail’ funds are those owned and managed by banks and other financial services companies.

‘Industry’ funds are member-owned super funds with profits going to members, and for the past decade have tended to outperform their retail counterparts (source: Money Management Australia). As the name implies, industry super funds were originally set up for workers in specific industries, however nowadays, almost all of them are open to anyone.  Industry Super is the peak body for industry funds in Australia.

Tax rates and brackets

Australia’s tax system is managed by the Australian Taxation Office, usually just called the ATO. It looks after all aspects of national tax and also manages employers’ Superannuation Guarantee compliance.

Tax rates vary as a person earns more. There are also different tax rates depending on whether you are an Australian resident, a foreign resident or there on a working holiday. Thankfully, the Industry Super salary calculator can be customised to take your specific circumstance into account by clicking the ‘Adjust your situation’ button.

Medicare

An amount under ‘Medicare Levy’ is included in calculations.

Like the NHS, Australia has a modern, reliable and highly-regarded public health system through its universal health care insurance scheme called ‘Medicare’ (not to be confused with the US ‘Medicare’)

Instead of being funded through regular taxation however, it is primarily subsidised through the Medicare Levy, which is added to a person’s annual tax bill each year, based on their income.

Non-residents and those on a working holiday are generally exempt from paying the Medicare Levy, and again, this is recognised by the customisable calculator, and shown when you choose the ‘View tax breakdown’ option.

Other factors

The calculator also takes into account certain tax offsets that the Australian Government offers to low and middle income-earners once they submit their annual tax return, and also offers suggestions on reducing annual tax by making voluntary contributions to superannuation.

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Monday, July 20th, 2020 Foreign Currency, Income Tax, Jobs, Pensions No Comments

None of the content on this website, including blog posts, comments, or responses to user comments, is offered as financial advice. Figures used are for illustrative purposes only.

US Government shutdown

by Admin

I’m sure most people will have heard of the shutdown of the US Government which started on 1st October, due to a disagreement about whether or not to raise the “debt ceiling” (in short, the amount of money the government can borrow to pay for things it has already agreed to pay for). As a result of the shutdown a large number of government employees are on unpaid leave or working reduced hours and much government work is not being done.

One impact of this shutdown which may affect British tourists is that a large number of attractions are federally funded – that is, they are operated by the central US Government. An example of this is the National Park Service, which runs National Parks around the country. Since the shutdown began, all National Parks have been closed, preventing tourists from being able to visit. Some of these are what you might expect “Parks” to be, like the natural beauty at Yosemite, but others are famous monuments like the Statue of Liberty. Tourists are finding that even if they bought a ticket before the shutdown, on scheduled tours for places like the island of Alcatraz or Pearl Harbor, they have not been able to make the visit as planned.

For those who have booked a short holiday to the States, waiting until the shutdown reaches its conclusion and the parks reopen is not an option. If you find yourself in such a position, you can investigate other tourist attractions which may still be open. For example, while National Parks are closed, State Parks (those operated by the state they are in, rather than by the central government) remain open. I spoke to one couple who had planned to see the giant Californian redwoods at Muir Woods National Park – with the park closed they had to make new plans but were able to go instead to Armstrong Woods State Natural Reserve, which was open as usual, and see the trees they had hoped to see!

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Friday, October 11th, 2013 Economy, Foreign Currency No Comments

Updates for USA tax changes

by Admin

Over the New Year period I was in the USA, watching with interest as the government there tried to resolve their tax and spending problem that was called the “fiscal cliff”. This cliff was due to the fact that many of their tax laws were due to expire at the end of 2012 and they had not yet agreed how to proceed for 2013. Tax years in the USA are the same as calendar years, starting on 1st January, so it was important that they reached a conclusion over the holiday period.

There is a US version of The Salary Calculator, and so I needed to know how to update it for 2013. Unfortunately, when the answer came, it wasn’t simple and it wasn’t very clear, either. As well as changes to some of the tax rates (including an increase for the top rate from 35% to 39.6%), there was an additional Medicare (health care) tax of 0.9% on those earning over $200,000 ($250,000 for married couples). There was also the re-introduction of old regulations which reduce the amount you can deduct before tax – Personal Exemption Phaseout (PEP) and “Pease” (reduction of pre-tax deductions named after the congressman who created it). PEP is similar to the personal allowance reduction which occurs in UK tax if you earn over £100,000 and applies to those earning more than $250,000 ($300,000 for married couples). Pease reduces pre-tax deductions such as charitable giving for those earning more than these same thresholds. The overall effect is to increase income tax revenue, largely from the upper middle class and the wealthy.

As well as applying these tax changes to The Salary Calculator, I also had to include something called Alternative Minimum Tax, which is used to make sure that taxpayers don’t use so many deductions and loopholes to reduce their tax burden below a certain percentage of their income. This had been in effect for a few years but was rising in prominence and the number of taxpayers it affects, so I was overdue in adding it.

All of this led to a significant amount of work, not least in finding reliable figures for the thresholds and rates which apply to all of these for 2013. Even though I believe I have found the latest ones, the US government is meeting again later in the year to discuss tax plans again, and it is possible that these figures or rules may even be changed again – if this happens I will update the US Salary Calculator with the latest information. To learn more about the tax calculations, see this page about the US Salary Calculator.

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Comparison of UK and USA take home

by Admin

You may not know that there is a US version of The Salary Calculator which calculates take-home pay after income tax and Social Security (which is like the UK’s National Insurance). I thought it would be interesting to see how much of their salary our American cousins get to keep compared with how much we get to hold on to over here. I used an exchange rate of $1.59 to the pound, and the 2012 tax rates for both countries, to create this chart:

Comparison of UK and USA take-home pay

Click the image for a larger, interactive version

As you can see, in most cases the Americans get to keep more of their hard-earned cash than we do. The top rate of federal income tax is 35% in the USA, and they only start to pay that if they earn more than $398,100 in a year – compared with 40% tax in the UK if you earn more than £42,475 and 50% if you earn more than £150,000. Also, Social Security is charged at 5.65% of most incomes, compared to National Insurance which is calculated at 12% (although only above income of £7,605 per year). You might have heard in the news some people saying that the 50% tax rate makes Britain unattractive for wealthy business people – this is what they are talking about – if you could run the same business in the USA and pay tens or hundreds of thousands less in tax each year, you’d think about moving – making any British employees you have redundant and employing Americans instead.

However, before you start packing your bags, there are a few other things to consider. Firstly, you can see from this zoomed-in version of the chart that if you earn less than about £12,000 per year, you actually get to keep more of it here in the UK than you would in the US:

Zoomed-in version of the US and UK take-home comparison

Click the image for a larger, interactive version

Also, these calculations only include federal income tax and Social Security – most of the states charge separate income tax on top of what the central government takes, which The Salary Calculator doesn’t currently work out. Another consideration is that in the UK we can rely on the NHS to provide us with healthcare if we need it either for free or for a relatively small prescription charge, but in the USA health insurance can cost thousands of dollars per year.

Also, it can be difficult to get a decent cup of tea.

You can read more about US tax rates on The Salary Calculator (US).

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Thursday, March 29th, 2012 Foreign Currency, Income Tax 16 Comments

US tax can be complicated for same-sex couples

by Admin

I was in the USA recently and was interested to see an article in the newspaper USA Today reporting that same-sex couples sometimes face extra difficulties when it comes to paying their taxes. In the US, although there is an equivalent to PAYE (where your employer deducts your tax for you), almost all taxpayers complete a tax return detailing their income, allowable deductions, and the tax they should pay. This might be more or less than what your employer deducted, so you may have to pay the difference or request a refund.

The problem for same-sex couples occurs because of two details of the American tax / legal system. Firstly, married couples can file a joint tax return, rather than filing two separate returns. Filing a return can be a laborious process, and sometimes it is necessary to pay a tax consultant to complete it for you, so filing only one can save time and money. Sometimes, filing a joint return actually leads to less tax being owed, an obvious benefit. Secondly, same-sex marriage is not recognised by the federal government (i.e. the country) but is recognised by some states (e.g. Massachusetts). What this all adds up to is same-sex couples having to file different tax returns at the state and federal levels – a joint return for their state (if it allows them to submit joint returns) and separate returns for the federal government. This can cost couples more in tax consultant fees (as there are more forms to submit) and can cost them more in tax as they miss out on the tax benefits of being a married couple.

At the moment it doesn’t appear that this problem is going to go away – not soon, in any case. You can learn more about US Federal Income Tax on the US Salary Calculator.

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Sunday, February 26th, 2012 Foreign Currency, Income Tax No Comments

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