Work Bonus

The "Work Bonus"

The Work Bonus provides an incentive for individuals and couples in receipt of a pension to continue earning employment income by reducing the impact of any employment earnings on the Income Test and therefore on the level of the pension they receive.

Who is eligible for the Work Bonus?

All pensioners over Age Pension age are eligible for the Work Bonus if they have "employment income" - which is defined as including:

• wages paid in Australia and outside Australia
• leave, where you remain an employee of the same employer and
• director’s fees

But excluding:

• leave payments if you have terminated your employment
• self employed income
• payments to you as a principal from sole traders or partnerships
• investments or
• superannuation income

The reasons for excluding self employed income are both inadequate and unclear - Centrelink merely states, "Pensioners who are self-employed or running a business are not entitled to the Work Bonus, but are able to make business deductions from their income." The reference to having access to "business deductions" is of doubtful relevance.

How does the Work Bonus affect pension rates?

As mentioned above, the Work Bonus increases the amount an eligible pensioner can earn from employment before it affects their pension rate. The first $250 of fortnightly employment income is not assessed or counted under the pension Income Test. Note that the Work Bonus applies to individual pensioners; it cannot be shared by a pensioner couple.

Effective September 20, 2018 the Income Test provides that an individual pensioner can earn up $172 per fortnight without affecting their pension, and couples $304 per fortnight. The pension reduces by 50c for every dollar earned over this amount.

Work Bonus "Income Bank"

Note that any unused portion of the excluded fortnightly $250 will accumulate in an ‘income bank’ up to a maximum amount of $6,500. This balance is not time limited and, if unused, it will carry forward, even across a number of years. This should happen automatically as long as you report your income to Centrelink.

Legislation passed in February, 2019 will see the Work Bonus increase from $250 to $300 per fortnight from July 1, 2019. The application of the bonus has also been extended all income from "gainful work that involves personal exertion". This includes earnings from self-employment and work undertaken as an independent contractor or consultant. The maximum unused concession balance also increases from $6,500 to $7,800.

The consequence of both the fact that individuals can earn up to $172 per fortnight without affecting their pension plus the $250 work bonus is that Age pensioners can regularly earn up to $10,972 per annum without it affecting their pension and potentially more in a particular year if they have an Income bank to draw on.

Some Examples

Bob claims the single Age pension and works on a regular, part time basis at a local store, earning $396 per fortnight with no other income sources. Applying the Work Bonus, only $146 of that income ($396-$250) is assessable income under the Income Test - that is below the income test free level of $164pfn and he can earn this income without it affecting his Age pension.

Angela and Jim are a couple who both receive the Age pension. Angela works at an accountancy firm for 2 days a week earning $600 per fortnight, while Jim regularly works as a handyman on a regular part time basis earning $300 per fortnight. Effectively a combined employment income of $23,400 per annum. Angela and Jim's combined assessable income of $900 per fortnight is $608 higher than the income test free area for a couple of $292 per fortnight. Without the Work Bonus their combined pension would be reduced by $304 per fortnight - from $1203 to $899 per fortnight. Applying the Work Bonus to both Angela and Jim; Angela has her assessable income reduced to $350 pfn ($600 - $250) and Jim to $50 ($300 - $250) for a total of $400. This is $108 pfn higher than the couples income test full pension threshold of $292 and therefore their combined fortnightly pension is reduced by $54 per fortnight.

Mark is employed seasonally for 8 weeks on the grape harvest, earning $6000. Mark has not worked in the previous 12 months and as a result he has accumulated the maximum income bank amount of $6,500 (26 fortnights x $250).  As Mark's work income bank amount exceeds his employment income, none of the $6,000 is assessed under the income test and he will continue to receive the maximum Age Pension. In addition, Mark will still have $1,500 in his income work bank to offset any future employment earnings ($6,500 - $6,000 earnings + $250 Work Bonus concession for each of the four fortnights that Mark works).

Application for the Work Bonus

Pensioners don't need to apply for the Work Bonus. Pensioners with variable fortnightly employment income must however keep Centrelink informed of their income, as the Work Bonus can only be applied to employment income that has been reported.

The whole process is complicated but it is taken into account in our Age Pension Calculator.