How to halve your tax rate

I do 3 days of paid work per week. I find it to be a good balance between earning some income and having free time to do the things I enjoy.

Today I discovered another advantage. An average 5-day worker pays around 18% tax. An average 3-day worker pays just 9%. Here's why.

The more you earn the more tax you pay. Here in Australia we pay no tax on the first $18,200. But after that each chunk of money is taxed at higher rates.

Tax-free Mondays

Think of it this way. The average wage is $231 a day. Working just one day per week, that would be tax-free. Work a second day and you lose $20 in tax. By the time you get to a 4th or 5th day the tax (on those days) is about a third of what you earn.

I think this is partly why some new parents work fewer days. After paying all that tax and then childcare fees, it's just not worth their time to do a fourth or fifth day - because their true wage is hardly anything on those 4th and 5th days.

The same goes for people who just have other priorities in life. Even though a fourth or fifth day is extra money - it's also extra time lost. The fifth day is just as long as all the others - but for far less pay. Is it still worth it?

It can get to a point where the smaller amount of money is not as valuable as the chunk of life it is taking away from me. After all, who gets to the end of their life and says "I wish I'd spent more time at the office"?

Disclaimer: This is not financial advice. The graph and numbers are a simplified illustration for someone on $60k with no other income. IT is also based on Australian tax rates at the time of writing.

Comments

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