PAYG and HECS

bargin424 on 29/04/2017 - 19:01
Last edited 30/04/2017 - 08:36

Hi all,

I understand that Hecs is deduced as tax and the money is "withheld". Say if you have $5,000 in Hecs and it hits the finanal year, would the goverment first increment hecs, then add the deductions in?

I am thinking of just paying off $5,000 so I don't loose any money.

Also, does anyone know what needs to happen so the employer does not deduct the Hecs payments and refund the money back?

Edit:

Question: Will the hecs debt incure its indexdation, before it use the money within the PAYG to pay off the Hecs debt?

Financial

Comments

  • BensonP on 29/04/2017 - 19:14

    All I can say, is if you are planning on paying some off, do so BEFORE June 1st, as to avoid indexation being applied.

  • Gronk on 29/04/2017 - 19:18
    -6

    If you can afford you pay off your HECS debt, just go ahead and do it, less stuff to worry about :)

    Once you've paid it off you just need to let payroll know that you don't have a HECS debt any more, if they're picky they might get you to fill out another PAYG form except this time you get to tick 'No' in the box for the HECS debt.

    • icejester on 29/04/2017 - 20:35
      +3

      Have to disagree there, less stuff to worry about doesn't always mean its a good option.
      HECS debt is one of the lowest interest loans out there. You'll definitely pay it off eventually because it comes out of your pay so just let it happen automatically. On the other hand if you have an extra 40000 on hand you can put a deposit for a property down albiet where you'll probably need binoculars to see Sydney. But looking back in time 40000 - 3 years ago would've been 5% deposit on decent city property.
      The difference of having 40000 vs paying it off shows in 3 years. Time is everything. I have learnt that we can waste everything in life and get it back except time.
      Confucius out.

      • tomsco on 29/04/2017 - 20:58
        +4

        You'll definitely pay it off eventually because it comes out of your pay

        Unless you did an arts degree and never hit the threshold :p

        • julesio on 01/05/2017 - 08:30

          Earning substantially more than my friends with engineering, law and commerce degrees ;)

    • ronnknee on 29/04/2017 - 20:55

      If you can afford you pay off your HECS debt, just go ahead and do it

      Why? It's the best loan you can get. With the money you have, you could invest it instead.

  • bobbified on 29/04/2017 - 20:52

    "…so I don't loose any money."

    What money are you going to lose?

    When you start employment, you fill out the PAYG form. If you tick the box to say that you have a HECS debt, the employer will withold the additional amount that's specified by the ATO (they have percentages/amounts tables for employers to use so how they know how much withold for each pay period).

    If you tick NO on that box, the employer won't withold any additional money for HECS. But if you meet the criteria to repay HECS that year, you'll get a tax bill when you do your tax refund.

    If your employer has witheld too much Tax/HECS, then you'll get it back as a tax refund.

    So you won't actually lose any money regardless of how much they deduct. (if anything, it'll just be the potential interest you'll lose on not having that money until you get your tax refund).

    • bargin424 on 30/04/2017 - 07:20

      The indexdation I suppose.

      I believe the debt will be indexed, then the government will use the withheld money from PAYG to make payments to hecs debt?

      So i will lose approx.. 2% from indexdation if my understanding is correct

      • bobbified on 30/04/2017 - 12:11

        If you had a lump sum of money to pay your HECS, you could put it in the bank (in something like a term deposit - a little over 3% at the moment) and get more interest than the government would charge as part of indexation (2.something %).

        If you had a mortgage or something, it's better to pay that off before you voluntarily put any additional money into your HECS debt.

        • bargin424 on 01/05/2017 - 08:21

          If i make payment before end of financial year, i will avoid paying the indexdation.

          In that sense, i will be accumulating interst for the meantime and then paying off hecs at the last week of the financial year. Then, I get it back via a tax refund as it was held via PAYG.

          Yes its a few hundred dollars i will have on but a few hundred better than losing it right?

        • CheapskateQueen on 03/05/2017 - 00:29

          @bargin424:

          Indexation is applied to whatever amount is owing on 1 June, so if you're gonna pay it off, pay it by 30 May. If you wait until 30 June, you'll have to pay the indexation as well.

          The PAYG credits are applied to your HECS debt when you lodge your tax return, eg July 10. So if you don't pay it out yourself, then yes you'll also pay this years indexation that applies on 1 June.

          If you pay it out yourself by 30 May, any HECS component that you had witheld in your PAYG will get refunded when you lodge your tax return.

          If you've only got a small amount (eg 5k) then pay it out

        • bargin424 on 03/05/2017 - 06:44

          @CheapskateQueen:

          Will the deductions stop occuring after i lodge my tax return, or do i still need to inform the employer?

        • CheapskateQueen on 03/05/2017 - 10:39

          @bargin424:

          You have to notify your employer/payroll to stop withholding the HECS part.

          Ps congrats on finally paying it off!

        • spersephone on 03/05/2017 - 20:48

          @bargin424:

          Yes, you have to tell them. They only do what you tell them to do, which is withhold extra. They have no idea if you need to do it or not.

        • BasilJ on 03/05/2017 - 23:22

          I agree that if you have other debt, that money should go towards the most expensive debt first.

          I wonder if we need to consider taxation implications as well if you have savings that is generating taxable interest.

          Say if you have $40k in HECS debt. And you have 40k in your bank account to pay it off.

          • $800 increase in debt and $1200 interest *(1-your marginal tax rate)

          • so, if you are on the 32.5% tax bracket, then your after-tax interest is $810. So yes, you are $10 better off.

          • but if you are on the 37% tax bracket, then your after-tax interest is $756. So no, you are $44 worse off.

          • and on the 45%, your after-tax interest is $660 so you are $140 worse off.

  • mskeggs on 29/04/2017 - 22:10

    If you carry zero debt, pay off your HECS as quick as you can.
    If you have any other debt pay it off first.

    I don't think there is any other circumstance that impacts those priorities (ok, well, maybe if you are terminally ill, or have been an overseas resident for the past decade there might be better options, but for nearly everybody).

    • rxjb on 29/04/2017 - 23:44
      +2

      saving for a house? I held off making additional repayments as i was saving for a house deposit….

  • djkelly69 on 29/04/2017 - 23:00
    -2

    With spelling and grammar like that, I am either:

    • surprised you have a degree, or
    • not surprised you dropped out before getting a degree.
    • BensonP on 30/04/2017 - 07:56
      +3

      You do realise what website you're posting on? Lol

      We're talking about people who lose their minds over .25% Cash Rewards increases…

  • spersephone on 02/05/2017 - 20:16

    If you can afford to pay off the debt before June 30, and it's a reasonably small sum, do it. Otherwise, when your tax return is assessed, your accumulated HECS will be recalculated, taking into account whatever money has already been withheld to pay it off through PAYG, and will also incur indexation.

    Until you tell your employer to stop withholding HECS payments, they will continue to take extra tax out of your wage. They don't know if you've paid it off. The ATO don't even know until you've done your tax return each year. If you pay it off completely, you still have to tell your employer to stop taking that money.

    On the plus side, you will have access to more take home pay when you don't need to put it aside for this. Then you can use that money for something else. If you're earning over the repayment threshold but can afford to pay off what's left, I'd do it. If there's a considerable amount left, just keep going and let it be paid off over time.

    • spersephone on 03/05/2017 - 20:47

      I had forgotten that the indexation occurs on June 1st, so as already suggested, pay it before this date if you're trying to pay it off.

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