HECS Help - Is It Removed from Pre Tax?

funnysht on 19/07/2019 - 16:40
Last edited 19/07/2019 - 18:03

Hi

Had a question about HECS help debt. Is it removed pre tax?

I looked up this question on google but doesnt seem to get a clear answer: the answer from ATO is
Thanks for your question! Your employer withholds additional amounts from your pay each pay period and sends the full amount (your withheld tax and your withheld HELP repayments) to us at the end of the financial year.
There have been many answers from google- what i gather is help debt is paid from your pre tax salary?

What I want to know is
e.g. say gross payments $60,000 (i.e. before tax). Is the HECS debt (say $5k for the year) taken out from $60,000, or is it taken out after tax is deducted).

The difference between the two is that if they take it out prior to tax then you only need to pay 5k, but if they take it out of your post tax salary then you have to pay back 5k+tax bracket so prob around 6k?

Hope this makes sense..

edit: Thanks everyone….I know it's calculated on my taxable income but is it paid out of my pre tax or post tax income?

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Comments

  • scrambledeggs on 19/07/2019 - 16:44
    -6

    Neither. It's based on your taxable income, and IS tax.

    • trex on 19/07/2019 - 17:01
      +3

      It is After Tax and while it is based on taxable income, it is NOT tax. Medicare is calculated the same way.

      • scrambledeggs on 19/07/2019 - 17:14
        -6

        False, it is neither before or after tax. If you earn $80k, they withhold X amount PAYG based on an $80k income. If you then make $10k of deductions then the amount they ultimately withhold for the financial year is Y (which is less than X) and you get a refund for the difference. It acts the same as tax.

        • HighAndDry on 19/07/2019 - 17:30
          +7

          It's based on taxable income, but it's deducted off your after-tax income. Your taxable income isn't reduced by the amount of HECS you pay.

          If it was before-tax, it'd reduce your taxable income and, since it's BASED ON your taxable income, you'd end up with a circular equation of sorts.

          • spiff on 19/07/2019 - 18:04
            +1

            @HighAndDry: It's calculated based on pre-tax income and it's not accurate to say it's deducted on after-tax income. It's deducted based on pre-tax income in addition to regular income tax.

            • HighAndDry on 19/07/2019 - 22:50

              @spiff: No, "pre-tax" would mean it's decreasing your taxable income. It doesn't, it's coming out of your after-tax income. The "pre-" and "after-" isn't talking about when (time-wise) it's deducted, it's about where in the tax equation it happens - before or after tax is calculated.

              • spiff on 19/07/2019 - 23:58
                +1

                @HighAndDry: I didn't say it was PAID out of pre-tax, I'm saying it's CALCULATED on pre-tax (gross) salary but is then trued up to taxable income when you lodge your tax return.

                • HighAndDry on 22/07/2019 - 09:54

                  @spiff: Sorry, in regards to this:

                  It's calculated based on pre-tax income and it's not accurate to say it's deducted on after-tax income.

                  The first part is correct. The second part is not - it is absolutely deducted "on after-tax income". The fact the tax office takes it at the same time as they take your tax (with PAYG) is a timing thing which isn't what OP was asking.

          • funnysht on 19/07/2019 - 18:12

            @HighAndDry: I guess that makes sense though- if you assume that based on your second line- couldnt they make an approximation and then you get a refund at the end of the year if you overpaid.

        • trex on 19/07/2019 - 18:09
          +5

          Please re-check your understanding of the terms pre-tax and post-tax:-

          Pre-tax deductions are taken out before taxes, and therefore reduce the amount of income that you have to pay taxes on, known as your taxable income.

          Post-tax deductions come out after taxes and don't have an effect on your taxable income.

  • MattyAu on 19/07/2019 - 17:05

    Additional PAYG Tax is withheld based on your Gross Income (pre-tax) to cover HECS debts. The rate at which it's withheld varies depending on which % withholding bracket you fit into, see here: https://www.ato.gov.au/Rates/HELP,-TSL-and-SFSS-repayment-th…

    Depending on your pay cycle, google something like 'HELP/SSL/TSL fortnightly withholding table', you should be able to download an excel spreadsheet from the ATO (component look-up tool they call it) you can punch your wage into to calculate how much will be withheld.

  • yolo123456789 on 19/07/2019 - 17:19
    +2

    the amount is calculated based on your taxable income

    "Thanks for your question! Your employer withholds additional amounts from your pay each pay period and sends the full amount (your withheld tax and your withheld HELP repayments) to us at the end of the financial year." - This basically means each time your employer pays you, on your payslip you will see your pay for this period, ie $xxxx amount of money, $xxx amount has been withheld as tax and $xxx amount has been withheld for HECS, and a side note that the HECS amount would only be withheld if you tick you have HECS on your declaration form when you started your job. So if you haven't ticked it, it won't withheld that amount, BUT at the end of the financial year the amount will be calculated when you do your tax return anyway.

    Happy to be corrected, from memory that's how mines was like.

  • funnysht on 19/07/2019 - 17:54

    Thanks everyone….I know it's calculated on my taxable income but is it paid out of my pre tax or post tax income?

    • Pikaloo on 19/07/2019 - 18:02
      -4

      PRE

    • spiff on 19/07/2019 - 18:02
      +5

      If you ticked the HECS/HELP box on the tax file number declaration form then it will be deducted based on your pre-tax (gross) income. The true up will be done at tax return time where if your taxable income is less than your gross income, you'll get the requisite portion back in the refund.

      • funnysht on 19/07/2019 - 18:14
        +1

        i thought this would be correct, but a lot of people are saying the opposite

    • trex on 19/07/2019 - 18:03

      Read HighAndDry's reply above.

    • Typical16-bitEnjoyer on 19/07/2019 - 18:28
      +1

      It's not "paid out of" you pre or post tax income.

      It's calculated based on your pre tax income.
      https://www.ato.gov.au/Rates/HELP,-TSL-and-SFSS-repayment-th…

      "taxable income" is pre tax.

      Obviously what you owe or get returned at tax time depends on your taxable income and deductions.

      • Sage on 19/07/2019 - 18:49

        Yeah, paid after you do a tax return and say how much money you earned.
        Earn X amount? Pay X amount.
        Nothing to do with when they "take it out". Taxes paid throughout the year are the same as taxes paid voluntarily. It's all pooled together then distributed after the tax return is lodged.

  • dasher86 on 19/07/2019 - 18:44
    +4

    Your HECS-HELP repayment income (HRI) differs from your taxable income. Calculate it like this:

    Your taxable income for an income year, plus
    Your total net investment losses, plus
    Any total reportable fringe benefit amounts shown on your PAYG payment summary; plus
    Reportable super contributions; and
    Any exempt foreign employment income from the current income year.

    It is paid from post tax. But deductions are usually taken as PAYG if you ticked the box.

    ~HECs is not a taxable deduction.

  • Sage on 19/07/2019 - 18:45
    -1

    …what?
    Hecs is paid through your taxes. If you declare you have a HELP or HECS debt in your TFN Declaration form to your employer then they take out additional tax. After your tax return is lodged, it's determined whether you'll need to pay towards your debt, and the rate is a percentage of your taxable income.

    Taxable income is taxable income. The ATO doesn't care about gross income. They're not going to tax you on money they've already taxed you on, because they have that money.
    To be technically correct, it's charged on "repayment income" which basically means if you have fringe benefits that aren't taxed then you can't get out of having to pay it. Same for salary sacrifices and other forms on incomes that don't technically count as standard taxable income.
    If you're getting 70 grand you're expected to pay your debt.

  • funnysht on 19/07/2019 - 19:05
    -1

    I see, so to make it easier for a non tax/business guy like me

    (I only want to know whether it is better to get a HECS loan for a saving- or just to pay HECS up front-up front would mean paying with post tax dollars- besides the obvious benefits of using the money for other ivnestment purposes).

    1) If an employer takes $20 out for parking fees from gross income prior to calculating tax then say the 'true cost' is $20.

    2) If I go buy a cup for $20 , then the 'true cost' would be $20 plus your tax bracket= say $25

    So if a HECS debt is paid from my income- it'll fit into (2) in terms of actual cost?

    • Baysew on 19/07/2019 - 19:20
      +8

      or just to pay HECS up front-up front would mean paying with post tax dollars

      You are repaying the HECS loan with your after tax dollars, like any loan.
      The only difference is the "interest rate" is the inflation rate only and the repayments are taken by the ATO via the Tax system.

    • lolz112 on 19/07/2019 - 19:57
      +3

      I think you are confusing yourself here. Think tax deductable and non tax deductable. The parking fees in your case are tax deductable, the cup is not tax deductable. The true cost of the cup is $20, your "true cost" of the parking fees are less because it reduces your income by less than $20. HECS is not tax deductable and comes from what you are calling "post tax income"

      • funnysht on 19/07/2019 - 20:19

        thanks that make sense

      • leiiv on 21/07/2019 - 01:22

        That is like saying a glass of water is either half full or half empty. Both of them “quantitatively” mean the same thing..

  • argonide on 19/07/2019 - 19:21

    Can the answer be neither pre or post tax because it is done at the same time as tax? As stated by the answer from the ATO.

  • tassieeagle on 19/07/2019 - 19:24

    Here's a question. I earned less than the hecs threshold but my employer took out hecs repayments since I started employment in February. Can I get those payments back? I've already lodged by return and it didn't seem to indicate anything about it.

    • argonide on 19/07/2019 - 19:25
      +3

      Yes, you get that money back.

      • tassieeagle on 19/07/2019 - 19:27

        Is that a separate payment? I've received my return already and it didn't mention hecs

        • argonide on 19/07/2019 - 19:31
          +1

          No, so the ATO pool together the tax and HELP paid from your wage over the year.

          Based on your taxable income they would calculate the tax you owe, then subtract any tax offset e.g. Low and middle income. Then add on the medicare levy.

          This tax amount is then paid with the pooled tax and HELP they collected over the year and they refund you any extra as one payment.

  • Austaurean on 19/07/2019 - 21:56
    -2

    Didnt read it all but.. remember that the HELP debt increases every year, by around 1.9% to 2.3% or so, so if you have the cash, its probably best to pay it out. If you have a home loan at say 3.65% or so, then possibly best to leave it and only pay what you need to each year. More numbers to look at, not just if its payable at pre tax or after tax dollars.. We are about to go through the same thing, so can ask the accountant..

    • Hardlyworkin on 20/07/2019 - 09:50
      +1

      With interest rates being so low have we reached the point of where it is better to pay off the debt than keep the money in the bank.

      For example I have a 10k HECS debt left that I could pay off from money in my savings account. I've always been told it's better just to pay it off gradually as CPI is low.

      I wish there was an incentive to pay off a chunk of HECS like there was in the past.

      • Austaurean on 20/07/2019 - 17:01

        Yep, me too.. last year the accountant said Just to let it sit, will see what he says this year..

  • ozbargainsam on 20/07/2019 - 08:07
    +1

    Even before looking at the rules, if you just think about these simple facts:

    • government gives you a hugely subsidised education on a loan
    • loan is indexed at CPI
    • loan is repaid when you start earning money

    But

    • government also takes no tax from your debt payment?

    Is this like the best debt program ever? (Apart from the boomers who got it totally free).

    No. Clearly the last point is not the case. Your HECS loan is paid from money you get after tax is taken out.

    Maybe you could negatively gear your HECS debt? (this part is a joke).

    Example: my situation, I went from an average tax rate of 32.6% to 26.6% the month I finished paying off my HECS debt (I asked my work accountants to re-evaluate my PAYG rate).

  • lunchbox99 on 20/07/2019 - 08:19
    +4

    I think this thread gave me cancer

  • spal on 20/07/2019 - 08:46

    It is calculated on your taxable income (income - deductions = income for calculating help repayment). Example Total income from all sources is $100,000 less union fees, income protection insurance $1000 = $99,000 taxable income. Your help repayment will be calculated on in which slab this figure fits in. In short calculated on income before deducting income tax. Going by your example on $60000 (assuming there aren’t any deductions).

  • HeWhoKnows on 20/07/2019 - 19:58

    HECS is money owing to the government.

    Deducting anything pre-tax is like getting a tax deduction!

    Seems that OP is hoping to get a tax deduction on money owing to the goverment by deducting it pre-tax. I dont think so!

    The government wants every HECS dollar back and every tax dollar you owe too so they aint going to give you a tax deduction on it.

    • funnysht on 20/07/2019 - 21:04

      correct me if i'm wrong but this site is ways to try to save money.
      "If you don't ask, the answer is always no. If you don't step forward, you're always in the same place."

  • belongsinforums on 21/07/2019 - 09:11

    afaik its much better to take the loan rather than pay off uni upfront

  • SurprisedEwe on 21/07/2019 - 12:01
    +3

    There seems to be lots of misinformation and miss guided people in this topic

    HECS/HELP is calculated on gross income such that any tax you pay doesn't matter.

    It is a flat percentage based on your total salary/income before tax.

    E.g. if you earn $100k you're in the top repayment bracket of 8%, then your compulsory repayment is $8000. Your taxable income is irrelevant!

    Other very important point which I have seen many (allegedly smart people as we were engineers) not realise. If your repayment is $8000 for the year and you make a voluntary repayment of $8000, come tax return time, if you still have a debt, you still have to pay the $8000 compulsory component. Essentially you'll make a double payment!

    Hope this clears it up :)

    • MessyG on 21/07/2019 - 17:21

      This. This and the Medicare Levy. Both calculated off gross, not taxable income. So things like reducing your pre-tax income (i.e salary packing) have no bearing on either of these payments.

    • yolo123456789 on 22/07/2019 - 08:56

      so I found this…

      When do I start paying back my loan?
      Your HECS-HELP debt forms part of your accumulated HELP debt. You must start repaying your HELP debt through the tax system once your income is above the compulsory repayment threshold, even if you are still studying. The threshold is adjusted each year and for the 2018–19 income year, it is $51,957 or above.

      Repayments made through the Australian taxation system are called ‘compulsory repayments’ and continue until you have repaid
      your whole debt. Your compulsory repayment is calculated from the amounts given on your income tax return, including:

      • your taxable income,
      • reportable fringe benefits (reported on your payment summary),
      • total net investment loss (including net rental loss),
      • reportable super contributions, and
      • exempt foreign employment income amounts.

      • yolo123456789 on 22/07/2019 - 09:01

        And this

        The Medicare levy helps fund some of the costs of Australia's public health system known as Medicare. The Medicare levy is 2% of your taxable income, in addition to the tax you pay on your taxable income

  • Daabido on 21/07/2019 - 15:23
    -1

    If you ticked the box that you had a HECS debt when you were employed, you will have paid the right amount, give or take. Don't tick the box and you will end up with a debt to pay. What does your fortnightly or monthly pay slip say?

  • Typical16-bitEnjoyer on 22/07/2019 - 10:02

    Another thing people might not know - they snuck in a massive reduction to the minimum income threshold a while back.

    Currently you need to earn $51,957 to have compulsory HECS repayments.
    Next year it drops to $45,881. That'll hurt a significant amount of part time students working full time hours.

    • funnysht on 22/07/2019 - 13:30

      argh..yeah soon it'll be 35k…. Other countries have free education, whilst i understand it can't be free in Australia- they should at least make it tax free!!!

      • Typical16-bitEnjoyer on 22/07/2019 - 18:25

        It was free for those making these policy changes in parliament.

    • kerfuffle on 27/07/2019 - 15:39

      Next year it drops to $45,881. That'll hurt a significant amount of part time students working full time hours.

      It's already dropped/effective. I got paid (15th every month) and they took out more compared to last month

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