Work Bonus increase: when permanent can be temporary
How much is the new revamped Work Bonus worth per year: $11,800 or $7,800 or something else? The answer will surprise you.The idea of Work Bonus (and the Work Bonus increase) is that you don’t lose as much of your pension as you normally would because you work and get paid.
Pensions are paid fortnightly. If you work and get paid, up to $300 won’t be included in the pension income test, which cuts your payment by 50 cents for every dollar you are over the income test limit.
So, it means that you get up to $150 more in your fortnightly pension.
There are twenty-six fortnights in a year, so Work Bonus is worth up to 26 times $300 equals $7,800 a year.
Last year and on a one-off basis, that $7,800 was increased by $4,000 to $11,800.
Work Bonus up permanently!
This one-off arrangement has now been made permanent. Depending on legislation going through Parliament in time, it will start on 1 January 2024.
But how it all works is difficult can be tricky and difficult to understand.
On the face of it, you would think that every year every working pensioner would be able to apply $11,800 against your earnings, rather than $7,800. But no!
You see, you only get that $4,000 hike once in your lifetime.
How Work Bonus works
Let’s say, a newly retired tax accountant on a pension will work from July to October 2024 (nine fortnights) doing income tax returns. On 1 January 2024, his Work Bonus balance (which is the total he will be able to apply during the year) is set at $11,800.
This $11,800 consists of $7,800, which can only be applied at a rate of $300 a fortnight, plus $4,000, which can be applied in one go or be spread out.
From July to October 2024, our newly retired tax accountant earns $12,000. To this he is able to apply $4,000 of Work Bonus, plus twenty-two (thirteen between January to June 2024 plus the nine he is actually working) fortnightly $300 installments of Work Bonus, or $6,600. That’s $10,600 in Work Bonus in total.
The remaining four fortnightly $300 installments ($1,200 in total) accumulate until the end of 2024, when this $1,200 is added to his new Work Bonus balance of $7,800 for 2025, so that it stands at $9,000.
When he again starts doing tax returns in 2025, he will be able to apply: the 2024 carry-over Work Bonus of $1,200 and twenty-two fortnightly $300 Work Bonus installments totaling $6,600. Together that’s … $7,800.
Rinse and repeat in subsequent years: $7,800.
Does that number ring a bell? Wasn’t that the old, maximum Work Bonus balance?
In another example, a pensioner has a permanent part-time job in a bottle shop earning $500 a fortnight. This pensioner uses the usual $300 fortnightly Work Bonus plus $200 a fortnight out of the $4,000 increase. This pensioner does so for twenty consecutive fortnights.
But that’s when the $4,000 credit is gone. That’s when this pensioner goes back to $300 a fortnight. And not just until the end of the year either, because on 1 January of the new year, no new $4,000 credit is forthcoming. What’s forthcoming is … $7,800.
That number again.
Yes, it is possible to use up your $4,000 and restore your maximum Work Bonus balance of $11,800.
But the only way to do that is by using up a maximum of twelve $300 installments in a given year. The remaining fourteen installments will then accumulate to $4,200, of which $4,000 will carry over in the new year and be added to the new, reset balance of $7,800 to produce $11,800.
A simpler way to do this is to not work at all, but that would defeat the benefit of Work Bonus.
In conclusion, the new Work Bonus arrangements are difficult to understand in their operation and effects.
However, on the upside, they don’t weaken Work Bonus as a program and can be of benefit to those prepared to plan their work around it.
And without wanting to stereotype any one profession, a retired tax accountant might be just the person to do the job.
The idea of Work Bonus (and the Work Bonus increase) is that you don’t lose as much of your pension as you normally would because you work and get paid.
Pensions are paid fortnightly. If you work and get paid, up to $300 won’t be included in the pension income test, which cuts your payment by 50 cents for every dollar you are over the income test limit.
So, it means that you get up to $150 more in your fortnightly pension.
There are twenty-six fortnights in a year, so Work Bonus is worth up to 26 times $300 equals $7,800 a year.
Last year and on a one-off basis, that $7,800 was increased by $4,000 to $11,800.
Work Bonus up permanently!
This one-off arrangement has now been made permanent. Depending on legislation going through Parliament in time, it will start on 1 January 2024.
But how it all works is difficult can be tricky and difficult to understand.
On the face of it, you would think that every year every working pensioner would be able to apply $11,800 against your earnings, rather than $7,800. But no!
You see, you only get that $4,000 hike once in your lifetime.
How Work Bonus works
Let’s say, a newly retired tax accountant on a pension will work from July to October 2024 (nine fortnights) doing income tax returns. On 1 January 2024, his Work Bonus balance (which is the total he will be able to apply during the year) is set at $11,800.
This $11,800 consists of $7,800, which can only be applied at a rate of $300 a fortnight, plus $4,000, which can be applied in one go or be spread out.
From July to October 2024, our newly retired tax accountant earns $12,000. To this he is able to apply $4,000 of Work Bonus, plus twenty-two (thirteen between January to June 2024 plus the nine he is actually working) fortnightly $300 installments of Work Bonus, or $6,600. That’s $10,600 in Work Bonus in total.
The remaining four fortnightly $300 installments ($1,200 in total) accumulate until the end of 2024, when this $1,200 is added to his new Work Bonus balance of $7,800 for 2025, so that it stands at $9,000.
When he again starts doing tax returns in 2025, he will be able to apply: the 2024 carry-over Work Bonus of $1,200 and twenty-two fortnightly $300 Work Bonus installments totaling $6,600. Together that’s … $7,800.
Rinse and repeat in subsequent years: $7,800.
Does that number ring a bell? Wasn’t that the old, maximum Work Bonus balance?
In another example, a pensioner has a permanent part-time job in a bottle shop earning $500 a fortnight. This pensioner uses the usual $300 fortnightly Work Bonus plus $200 a fortnight out of the $4,000 increase. This pensioner does so for twenty consecutive fortnights.
But that’s when the $4,000 credit is gone. That’s when this pensioner goes back to $300 a fortnight. And not just until the end of the year either, because on 1 January of the new year, no new $4,000 credit is forthcoming. What’s forthcoming is … $7,800.
That number again.
Yes, it is possible to use up your $4,000 and restore your maximum Work Bonus balance of $11,800.
But the only way to do that is by using up a maximum of twelve $300 installments in a given year. The remaining fourteen installments will then accumulate to $4,200, of which $4,000 will carry over in the new year and be added to the new, reset balance of $7,800 to produce $11,800.
A simpler way to do this is to not work at all, but that would defeat the benefit of Work Bonus.
In conclusion, the new Work Bonus arrangements are difficult to understand in their operation and effects.
However, on the upside, they don’t weaken Work Bonus as a program and can be of benefit to those prepared to plan their work around it.
And without wanting to stereotype any one profession, a retired tax accountant might be just the person to do the job.
