Tax offsets for low and middle income earners

Currently, there are two tax offsets for low and middle income earners, which could see you pay less in tax, and you might be eligible for both.

Paying tax is something most of us are familiar with, but probably something very few of us are excited about. For many low and middle income earners however, there’s a silver lining called a tax offset, which could see you get a bigger return at tax time if you’ve paid more in tax than you have to.

If you’re an Aussie resident paying tax on your income, you might be eligible for not just one, but two offsets, being the low income tax offset (LITO) and the low and middle income tax offset (LMITO).

In other good news, you don’t need to do any extra paperwork to get these offsets, as the Australian Taxation Office (ATO) will do this for you once you lodge your tax return.

Below we explain who’s eligible and a few other bits and pieces you may want to know.

What is a tax offset and how does it work?

Each year, your income is taxed at a rate based on the amount of money you earn. However, the amount of tax you pay may be reduced by tax offsets, and if you’re a low and middle income earner, you may be eligible.

As tax offsets reduce the total amount of tax you owe, if you’ve paid more in tax than you needed to over the financial year, your tax return may be slightly higher.

As low income tax offsets can only reduce tax owing, this means they can’t be used to reduce your Medicare levy, which is 2% of your taxable income, or Medicare Levy Surcharge (where one might apply)¹.

Am I eligible for one or both tax offsets?

Check out the tables below to see where you may be eligible for a full or partial tax offset, and in which cases you may be eligible for two tax offsets².

Current eligibility for the low income tax offset (LITO)

Your taxable income	Current LITO amount
$37,000 or less	$445
$37,001 – $66,666	$445 minus 1.5 cents for every dollar your taxable income is above $37,000
$66,667 or more	You receive no offset

Current eligibility for the low and middle income tax offset (LMITO)

This offset was introduced as a temporary measure and is available for the 2018/19, 2019–20, 2020–21 and 2021–22 financial years.

Your taxable income	Current LMITO amount
$37,000 or less	$225
$37,001 – $48,000	$225 plus 7.5 cents for every dollar your taxable income is over $37,000, up to a maximum of $1,080
$48,001 – $90,000	$1,080
$90,001 – $126,000	$1,080 minus 3 cents for every dollar your taxable income is above $90,000

What do I need to do to get the tax offset or offsets that apply to me?

As mentioned, the great part about these tax offsets is they don’t require you to do any paperwork.

The ATO will work out your tax offset after you lodge your tax return and if you’re eligible you’ll see it when you receive your notice of assessment in the ‘less non-refundable tax offsets’ section³.

What about the future of these offsets?

From 1 July 2022, the LITO will be increased, but the LMITO will be phased out⁴.

Check out the table below to see where you may be eligible in the future⁵.

Eligibility for the low income tax offset (LITO) from 1 July 2022

Your taxable income	LITO amount from 1 July 2022
$37,500 or less	$700
$37,501 – $45,000	$700 minus 5 cents for every dollar your taxable income is above $37,500
$45,001 – $66,667	$325 minus 1.5 cents for every dollar your taxable income is above $45,000
$66,668 or more	You receive no offset

Meanwhile, if you notice no offset applies to you in the future, it’s not all bad news as the government plans to change the income tax rates applied to taxable incomes, which will see a reduction in personal income tax rates⁶.

Are there any other offsets out there I should be aware of?

There are also a few offsets you might be interested in when it comes to your super.

The low income super tax offset (LISTO)

If you earn up to $37,000 a year, you may be eligible for a low income super tax offset (LISTO) of up to $500 per year.

You don’t need to do anything except make sure your super fund has your tax file number. Meanwhile, the ATO will work out your eligibility and pay the money into your super account.

The LISTO effectively refunds the tax that low-income earners pay on their before-tax super contributions.

The spouse contributions tax offset

If your spouse (husband, wife or de facto) is earning between $37,000 and $40,000 or not working at the moment, chances are they’re accumulating little or no super at all to fund their retirement.

If you’d like to help them by putting money into their super, you might also be eligible for a spouse contributions tax offset of up to $540 depending on eligibility requirements.