HELP and HECS repayment thresholds

[Tyler Durden]

Hi all,

I've always been of the understanding that my employer withholds tax from my gross pay on the basis of 1) an estimate of the tax I'd have to pay and 2) whether I have a HELP/HECS debt or not.

I can see on my fortnightly payslips that an amount is withheld for tax, and an additional amount is withheld because I have a HECS debt.

Now doing my tax return, I've learnt that if your 'HELP repayment income' is above a certain level, then a certain percentage of that income amount is applied to further pay your HELP/HECS debt.

A table for next year can be found here (don't know where the current year one is):

http://www.ato.gov.au/individuals/c...002/046/002/013&mnu=42957&mfp=001/002&st=&cy=

I just wanna know, why the hell do they do it like this?? They already take some from my fortnightly pay, and now they take more based on this thing called my repayment income?! I thought that was the exact reason they withheld it from my fortnightly pay - to ensure I'd pay enough by tax time.

Anyone know more about this?

 

[prawn_86]

I just wanna know, why the hell do they do it like this?? They already take some from my fortnightly pay, and now they take more based on this thing called my repayment income?! I thought that was the exact reason they withheld it from my fortnightly pay - to ensure I'd pay enough by tax time.

Anyone know more about this?

Came across this for the first time myself last week Tyler; we must be of a similar age.

I have also had amounts with-held for my HECS, and i too thought that the gov was repaid each pay. I have double checked this and how it actually works is that amount is withheld as say 'tax' and then at the eofy your amount owing includes part of your HECS debt.

For example, i was due a 7k refund based on just my tax payable versus receivable, but that 7k includes 4k worth of HECS which is due, so in effect i get 3k refund. So, in theory, if i had no HECs debt, my employer would not have taken that extra 4k out during the year.

I'm not sure why they do it like that, but your employer should have taken enough out that you dont end up having to pay anything back (mine has done).

Hope that makes some sort of sense...

 

[white_crane]

The sliding scale shows the percentage of your income which must be paid back because of HECS/HELP. This is not a choice, it is a tax which must be paid.

The amount taken out of one pay is based on multiplying that fortnightly pay by 26.

Sometimes what happens is that your usual pay is just under a HRI level, but come the end of the financial year, after everything is added up, you are actually over that HRI level and therefore must make up the extra pay required by the higher HRI level.

It usually happens if you receive infrequent overtime or any other sort of extra pay.

This happens to me every year.

e.g.
Lets say your usual pay is $46 800 p/a or $1 800 p/f and you get no overtime.
Each fortnight you would not pay any HECS as your under the lowest HRI.

However one fortnight you receive $2 000 because of overtime.
Your tax for that fortnight would include a HECS/HELP repayment of $80.
($2 000 * 26 = $52 000, meaning 4% HRI repayment rate, $2 000 * 0.04 = $80)

Another fortnight you receive $2 200 because of overtime.
Your tax for that fortnight would include a HECS/HELP repayment of $99.
($2 200 * 26 = $57 200, meaning a 4.5% HRI repayment rate, $2 200 * .045 = $99)

You get no further overtime for the year.

At the end of the financial year your total pay is $1 800 * 24 + $2 000 + $2 200 = $47 400.

This puts you in the 4% HRI repayment rate category. The compulsory payment is therefore $47 400 * .04 = $1 896.

You have only paid a total of $80 + $99 = $179

Therefore you owe $1 896 - $179 = $1 717 in HECS/HELP repayments.


Hope this helps.

 

[Tyler Durden]

Hey thanks guys very much, it all makes sense now. The way you guys explain it is a lot better than how stupid e-tax explains it.

I guess I'm just being grumpy because when I had only completed half my tax return, I checked my estimate as a 'rough' guide to see how much I'd get back. When I completed the whole tax return, the figure was very different

 

[white_crane]

You just cannot win with HECS/HELP. I know, I've tried.

Things you might not know about HECS/HELP:

As of FY10-11, investment losses are added back on to your taxable income to calculate your HRI.

If you die, your HECS/HELP debt is wiped clean - the debt is not subtracted from any estate that you may leave behind. The government writes off the debt. So if you voluntarily pay off the debt and then get run over by a bus, your beneficiaries miss out on that money.

Voluntary repayments are not deducted from any compulsory repayment amount - i.e. regardless of how much you have paid off voluntarily throught the financial year, any compulsory repayments must be made in addition.

If you get HECS repayments automatically deducted from your pay and at the end of the financial year you are under the lowest HRI, the government will send it back to you as a tax return. You could have invested that money for the year instead.

 

[Liar's Poker]

Some other things to note:

HECS/HELP loans are indexed on the 1 June each year. Not at the end of the financial year.

Once you have paid off your HECS/HELP debt, you need to complete a dispensation form (a form noting a change from the TFN Declaration you originally submitted to your employer) before your employer ceases withholding portions of your income. If this isn't complete, your employer will continue holding income and you won't receive back until you complete your tax.

The current 10% bonus for voluntary payments is being reduced as of 1 January 2012 to around 5% (i think). So if you are contemplating whether or not you are going to pay your debt off, it is worth taking the discount and index dates into account.

I quickly paid off my loan via voluntary payments prior to this years indexing. I cut it a bit fine with the indexing date, so nearly got hit up for an extra few hundred. I'll get all my withheld income from the 10/11FY back when I complete my tax, which will be a nice nest egg.

I chose to pay my last course upfront in full.

Managed to pay off 7.5 years of Bachelor and Masters study 1 month before I finished, only to fly to Denmark for my last course to find they don't pay for their education.

Good luck to all with the burden!

-Liar-

 

[Tyler Durden]

Hey thanks guys, some really interesting info there!
That estate one is a shocker

 

[white_crane]

The current 10% bonus for voluntary payments is being reduced as of 1 January 2012 to around 5% (i think). So if you are contemplating whether or not you are going to pay your debt off, it is worth taking the discount and index dates into account.

That is correct, as from January 1 2012, the bonus applied to voluntary payments AND upfront payments is being halved.

The voluntary payment bonus will be cut from 10% to 5% and
The upfront payment bonus will be cut from 20% to 10%.

The question is now figuring out whether it's better to pay off my HECS debt or keep my deposit. I'm leaning towards paying off the debt because you effectively get a 10% return on your money because of the (current) bonus.

 

[medicowallet]

That is correct, as from January 1 2012, the bonus applied to voluntary payments AND upfront payments is being halved.

The voluntary payment bonus will be cut from 10% to 5% and
The upfront payment bonus will be cut from 20% to 10%.

The question is now figuring out whether it's better to pay off my HECS debt or keep my deposit. I'm leaning towards paying off the debt because you effectively get a 10% return on your money because of the (current) bonus.

I would be more inclined to defer now as opposed to pay upfront. I think many people who were paying will see 10% return as quite poor over a few years.

 

[white_crane]

I would be more inclined to defer now as opposed to pay upfront. I think many people who were paying will see 10% return as quite poor over a few years.

I'm no longer at university, so for me it's an accumulated debt. As I understand it, those who pay up front only pay for those subjects in which they are enrolled at the time - i.e. you don't pay for the whole course at the start.