Do you, too, find the Work Bonus credit as clear as mud? We suspect this may be the case because of the volume of questions we receive on this topic. It seems that many Retirement Essentials’ members are simply bamboozled by what should be a straightforward calculation.
The following explainer of the Work Bonus is possible because our Head of Customer Services, Steven Sadler, has taken the time to step us patiently through the rules. Again! Someone send this man some chocolates now!
So here is an overview of the Work Bonus which includes:
- A brief definition
- A summary of the main rules, and
- Steven’s explanation of how these rules work.
A brief definition
The work bonus is a credit which reduces the amount of eligible income that is included in the Age Pension income test. It is applied to:
- Work performed in and outside Australia
- paid leave while still employed
- director’s fees
- self-employment, that involves active participation
The main rules
- The Work Bonus is available to those who are of Age Pension age and over and receive either an Age Pension, Carer Payment or Disability Support Pension. (Different rules apply to the latter two)
- It reduces the amount of eligible income that is included in the Age Pension Income Test
- Eligible recipients do not need to apply for it, it is automatically included in your income assessment.
- Your Work Bonus balance can be checked by viewing your Centrelink account, linked to your MyGov account.
- Since 1 January 2024, the maximum Work Bonus has been $11,800 ($7800 plus a $4000 bonus).
How the rules work:
Steven explains
How much can singles earn?
Q. How much can a single full Age Pensioner earn (ALL UP) per annum before moving to a part-Age Pension?
In the first year a single can earn up to $17,104:
- Firstly, there is an income-free threshold for the Age Pension. This is $204 per fortnight or $5304.
- Because you are eligible for the Age Pension you are allowed a Work Bonus credit of $300 per fortnight or $7800 across the year.
- And then there is the bonus $4000.
HOWEVER from Year Two onward, it is only $13,104 because you only get the $4000 bonus once. After that has been used, you are only entitled to $300 per fortnight, which is $7,800 per year (plus the above income free amount of $5304).
What about couples?
Q. How much can a couple who are full Age Pensioners earn (ALL UP) per annum before moving to a part Age Pension?
In the first year a couple (presuming both are Age Pension age and earning income) can earn $32,960:
- Couples have a higher income-free threshold of $360 per fortnight or $9,360 combined
- Presuming both are eligible for the age pension then you are each allowed a Work Bonus credit of $300 per fortnight or $7800 across the year.
- And then there is the bonus $4,000 each.
For couples, it is important to note that although the income-free threshold is combined between the two, the work bonus is applicable to each member of the couple specifically. If your partner is not of pension age then they will not earn any work bonus of their own and you cannot use your work bonus to offset their earnings. The other scenario is that both of you are pension age but only one of you is earning income, you will both accrue your own work bonus balance and cannot combine them to offset the one income.
We hope that this helps to clarify this important aspect of Age Pension.
But if you believe that your situation is different and you still have a niggling concern, please feel free to share your question and we’ll load up with chocolate and go back to Guru Steven.
Some further information from Services Australia
If you would like to check your own Age Pension entitlements (including work income allowances), using our Age Pension Entitlements Calculator is quick and easy.
You may also wish to explore a consultation where you can discuss maximising your entitlements with a qualified adviser.
One of the least complicated aspects of the income test
Last year with much fanfare, Labor introduced this smoke and mirrors debacle suggesting they where parting with some of there limbs and at a huge cost. Then they announced it would continue but to everyone’s surprise no we were told it was one off. Apparently the cost of living has gone down? Instead of rioting in the streets like the French the good old Aussies are done over again
Well spoken Peter,
I’m 71 on a part age pension and have worked permanent part time for many years earning $24500 p/a. Last 22/23 financial year for the first time I was over the taxable income threshold and had to pay the ATO $3000. First time in my entire working career! How can I keep tally of my age pension earnings to stop going over the threshold?
Thanks
I too work part time, do $50.00 salary sacrifice, and then came tax time, and my part pension was added to my income and I had to come up with $3,450.00 to the tax department. I was shocked.
Well I thought I understood the work bonus scheme now I am just not sure. Do I under stand that as a couple my husband can earn $17104 annually in his first year made up of $7800 plus $4000 work bonus (only applied once?) plus $5304 income free amount? As I understood it previously, the $11800 was the amount each year that could be earned before your pension was affected, seems that was too simple, surely the government could come up with a simpler solution.
Hi Patricia, $11,800 is how much you can accrue in unused work bonus but the amount discounted off your fortnightly income remains $300 per fortnight. So if you are using your work bonus each fortnight then you receive a reduction in assessable income each year of $7,800 whereas if you are not using your it then it accrues beyond the one year mark until you hit $11,800.
Hi James, thanks for your article !
I thought that the income-free threshold for couples is $360 per fortnight, but your article implies that it’s the same as for singles, can you please confirm ?
Also, if my wife is retired, but not at the pension age yet, does it mean that I can count on the whole amount of the couple’s income-free threshold for my income only ?
Do I understand correctly that, during income assessment, my Work Bonus is used before applying the income-free threshold ?
If it’s the case, then it becomes almost impossible to earn the max as income-free thresholds don’t accumulate if not used (unlike Work Bonus). In other words, it seems that one must use all Work Bonus quickly and then have fortnight earnings equal to (income-free + Work Bonus)…
Regards,
Eugene (recent Age Pension recipient)
Hi Eugene, thanks for pointing out ambiguity in the wording. The intent was to apply the same methodology to couples as you do for singles but as you pointed out the numbers you would use are different. I’ve updated the wording to make it more technically accurate for readers.
income derived from a hobby, as defined by the ATO, is not taxable. Does this mean that the same income is not assessible by Centrelink with respect to pension payments?
Hi Josh, great question but unfortunately the answer is no. The ATO are governed by Tax Law whereas Centrelink are governed by Social Security Law and this is one area where they differ. Any income you earn needs to be declared to Centrelink and can impact your pension payments.
Hi Steven, what do you think is the best way to report hobby income to Centrelink? Via phone, visit, mygov, or by letter? And when?
Gross or nett income?
We would recommend lodging documents via your Centrelink online account/app. That way you have a digital record of what has been advised and when that you can rely on. You should always declare gross income whenever possible.
Morning Steven,
Thanks for the explanation. However, the $4000 that we were given literally disappeared one fortnight. Asked Centrelink but they couldn’t explain it.
I work casually, but keep strict tabs. If I do more than 16 hours per fortnight, we loose some of our pension.
The thing that really annoys me is that we both loose it, so I pay my husband what he has lost. In the UK, the pension is based on the individual which I think is fairer.
I like working as I like to keep busy, but the Government is certainly ready to make it harder.
We get a part pension which has actually doubled since I retired four years ago, so not all bad.
If someone earns a small variable income from self employment, are work credits based on gross or net income? If a net loss, does it still have to be reported to Centrelink?
Hi John, thanks for your query! Yes the work bonus still applies to self-employed income and even if running at a loss this needs to be declared to Centrelink as they have no access/oversight to see this themselves.
Hi Steven. I am 68 and receive part-age pension. I am unable to work due to significant health problems, however my wife, who is 64 is still working as a teacher one day a week, in addition to the occasional casual day. I am required to declare my wife’s gross income each fortnight, which significantly reduces the amount of pension I receive. Can you explain to me what the government’s rationale is in not allow the work bonus to apply to my wife’s income? My wife wants to retire, but feels she can’t until she qualifies for the age pension herself, which is still more than two years away. In the meantime our income is significantly reduced in the current circumstances.
Hi Robert, it’s hard to say with certainty what the government’s rationale is on any topic however in this situation if the work bonus as applicable to those not on the pension it would potentially create a loophole for people who are not eligible for the pension to start receiving it. I’m certainly not suggesting you are doing this but in the interest or making sure the pension is only available to those who need it, scenarios such as yours do exist.
My wife and I are pension age, 74 years old and have a trust that operates from which we earn approx $14000 per year each, we actively work for this income. We declared this to centrelink for the period 1/7/23 to 30/6/24 and now receive $598 each per fortnight. I don’t think we are going to earn that much by 30th June this year. What are we allowed to earn? to receive the full pension payment.