Low and Middle Income Earner Tax Offset – Everything you need to know.

What is a tax offset?

A tax offset reduces the tax you pay (known as your tax payable) on your taxable income. Your taxable income is your total income minus any deductions you claim.

The low income tax offset and the low and middle income tax offset can only reduce the tax you pay to $0 (zero). Any offset amount that remains once your tax payable is zero isn't refunded to you.

Eligibility for the tax offsets

There are two tax offsets available for eligible low and middle income earners. These are:

• low income tax offset (LITO)

• low and middle income tax offset (LMITO).

Low income earners may be able to receive both of these offsets dependant on their eligibility.

These offsets can only reduce your tax payable to zero, it is not a bonus payment. The amount of available offset depends on your individual circumstances.

To be eligible for one or both of these tax offsets you need to:

• be an Australian resident for income tax purposes

• pay tax on your taxable income

• have a taxable income that is below certain income thresholds.

You don't need to complete a section in your tax return to get these tax offsets, we work out the offsets when you lodge your tax return.

If you are eligible, the amount of offset you're entitled to reduces the tax you need to pay when you lodge your tax return. You can see the amount of offset you receive on your notice of assessment (you won't receive the offset as a separate payment).

Low income tax offset

The amount of the low income tax offset (LITO) you receive will depend on your taxable income. If your taxable income is:

• $37,500 or less, you will get the maximum offset of $700

• between $37,501 and $45,000, you will get $700 minus 5 cents for every $1 above $37,500

• between $45,001 and $66,667, you will get $325 minus 1.5 cents for every $1 above $45,000.

Low and middle income tax offset

In addition to the LITO, you may also receive the low and middle income tax offset (LMITO).

If your taxable income is less than $126,000 and you are an Australian resident for tax purposes, you will get some or all of the LMITO.

As announced in the 2022–23 federal Budget, the LMITO has been increased by $420 (referred to as the one-off $420 cost of living tax offset) for the 2021–22 income year. This increases the base amount to $675 and the full amount to $1,500.

The LMITO amount for the 2018–19, 2019–20 and 2020–21 income years remains the same at between $255 and $1,080.

The amount of offset you receive depends on your circumstances, such as your taxable income and how much tax you have paid throughout the income year

The 2021–22 income year is the last year for the LMITO – it will not be available in future income years.

The tables below show the amount of the offset you can receive depending on the income year and your taxable income.

Low and middle income tax offset for 2021–22 income year

Note: If your taxable income is $126,000 or more, you will not receive the LMITO.

Low and middle income tax offset for 2018–19, 2019–20 and 2020–21 income years

Note: If your taxable income is $126,000 or more, you will not receive the LMITO.

Claiming income tax offsets

You don't need to complete anything in your tax return in order for the ATO to work out your low-income tax offset or the low and middle income tax offset. The ATO will work out the amounts of these tax offsets for you once you lodge your tax return.

Any offset you are entitled to is included when the ATO works out the result of your tax return.

If you want to find out how much of an offset you were entitled to, you can see this amount on your notice of assessment. Look for the Less non-refundable tax offsets section.

If you lodge online, your notice of assessment will be sent to your myGov Inbox once your return has been finalised.

If you receive a tax refund it will be deposited into your nominated bank account. Any refund may also be reduced by any debt you have with the ATO or any Australian government agency. The law requires the ATO to use refunds or credits to pay debt.

We’re here to help

If you need further assistance with your tax return or understanding more about the offsets our Accountants are ready to help. Click here to book an appointment today!

This article was originally posted by ATO.