Tax is settled once a year. Your employer withholds tax along the way, and the ATO compares it with what you really owe.
During the year your employer withholds tax using estimated tables. When you lodge your return, the ATO works out the real tax on your taxable income, subtracts offsets, adds the Medicare levy and any HELP repayment, and compares the total with what was withheld.
The refund formula
1
Start with taxable income
Income less your deductions.
2
Work out the tax
Use the resident rates, then subtract offsets such as the low income tax offset (up to $700).
3
Add Medicare and HELP
2% Medicare levy, plus any HELP repayment.
4
Compare with what was withheld
Withheld more than owed means a refund. Withheld less means a bill.
Worked example, 2026-27
Income $85,000 less $2,500 of deductions is $82,500 of taxable income. Income tax is $15,270 and Medicare is $1,650, so the total is $16,920. With $18,000 withheld, the refund is $1,080. Each extra $1,000 of deductions adds about $320 at this income.
Bonuses are not taxed at a special rate
A bonus is added to your other income for the year, so the extra tax is whatever your marginal rate says. A $10,000 bonus on a $90,000 salary adds $3,000 of income tax and $200 of Medicare levy, so you keep $6,800. Your employer may withhold a different amount when it is paid, and the difference is settled when you lodge your return.
💡 Pro Tip: A big refund is just your own money coming back late. If you are always owed a large refund, you may be having too much withheld, and a PAYG withholding variation or a tax agent can help.
✨ Key Takeaways
A refund means more tax was withheld than you owed.
Deductions cut tax at your marginal rate plus the 2% Medicare levy.
A bonus is taxed at your marginal rate, not a special one.
The ATO notice of assessment is the final figure.
Sources and checks
Our figures and rules follow these official sources:
