Understanding the Centrelink Income Test
How the Centrelink income test works, what counts as income, and worked examples showing exactly how much your payment reduces when you earn money.
General information and estimates only — not financial, tax, or legal advice. Always verify with Services Australia.
Step 1.What the Income Test Does
The income test is how Centrelink decides whether your payment should be reduced based on money you earn or receive. Almost every Centrelink payment is subject to an income test. The basic idea is simple: the more income you have, the less Centrelink pays you — until eventually your payment reduces to zero. Centrelink looks at your gross income (before tax), not your take-home pay. This catches many people off guard. If you earn $1,000 gross per fortnight but only take home $850 after tax, Centrelink assesses you on the full $1,000. Understanding exactly how the income test works lets you plan your finances and avoid nasty surprises on reporting day.
Step 2.How the Income Test Works for JobSeeker and Youth Allowance
For JobSeeker Payment and Youth Allowance (job seeker), there is an income-free area of $150 per fortnight. You can earn up to this amount with no reduction to your payment. For every dollar you earn between $150 and $256 per fortnight, your payment reduces by 50 cents. For every dollar over $256, your payment reduces by 60 cents. Worked example: say you earn $400 gross per fortnight. The first $150 is free. The next $106 ($150 to $256) reduces your payment by $53 (50%). The remaining $144 ($256 to $400) reduces your payment by $86.40 (60%). Total reduction: $139.40 per fortnight. If the maximum JobSeeker rate for a single person is $762.70, you would receive $623.30. That means your total income (wages plus payment) is $1,023.30 — you are always better off working.
Step 3.How the Income Test Works for Pensions (Age Pension, DSP)
Pension payments (Age Pension, Disability Support Pension, Carer Payment) use a more generous income test. As a single person, you can earn up to $204 per fortnight before your pension starts to reduce. For couples, the combined income-free area is $360 per fortnight. Above these thresholds, your pension reduces by 50 cents for every dollar of income. There is no second taper rate like JobSeeker. Additionally, pensioners benefit from the Work Bonus, which lets you earn an extra $300 per fortnight from employment income without it counting in the income test. The Work Bonus also has a banking feature — unused Work Bonus accrues (up to a maximum of $11,800) and can offset future employment income. This makes part-time work very attractive for pensioners.
Step 4.What Counts as Income
Centrelink counts a wide range of income sources. Employment income includes wages, salary, commissions, bonuses, and overtime. Self-employment income is your gross business income minus allowable deductions. Investment income is calculated using deeming rates (covered in our deeming guide), not actual returns. Rental income from investment properties, foreign pensions and income, superannuation income streams if you are over pension age, and some compensation payments all count. What does NOT count: the principal home you live in is not assessed under the income test (though it affects the assets test thresholds), Family Tax Benefit payments, Rent Assistance, and certain other Centrelink supplements. If you receive income from a trust or company, Centrelink may apply special rules — these can be complex, so consider contacting the Financial Information Service.
Step 5.The Income Cut-Off — When Your Payment Reaches Zero
Your payment reduces to zero once your income reaches a certain level, known as the cut-off point. This varies by payment type, your relationship status, and how many dependents you have. For a single person on JobSeeker Payment with no children, the cut-off is approximately $1,420 per fortnight (around $36,920 per year). For a single Age Pension recipient, the cut-off is approximately $2,436 per fortnight (around $63,336 per year), which is higher because the pension rate is higher. If your income drops back below the cut-off, your payment can restart — you do not need to make a new claim as long as you remain connected. This is why it is worth staying on your payment even if your income temporarily reduces it to zero.
Step 6.Partner Income and the Income Test
If you have a partner, Centrelink assesses your combined income and applies a partner income test. The rules differ depending on what payment you and your partner receive. If your partner earns above a certain threshold, your payment may be reduced even if your own personal income is zero. For JobSeeker, the partner income cut-off is approximately $1,524 per fortnight. For pensions, the couple income-free area is $360 combined, and each person's pension reduces based on half the combined excess income. This means a non-working partner of a high-income earner may not be eligible for any Centrelink payment. Always declare your relationship status accurately — Centrelink defines 'member of a couple' broadly and includes de facto relationships.
Step 7.Common Income Test Mistakes to Avoid
The most common mistakes people make with the income test: reporting net income instead of gross (always report the gross amount before tax and deductions), forgetting to report all income sources (including casual work, cash jobs, investment returns, and income from overseas), not understanding that lump sum payments (like leave payouts or redundancy) may be treated as income over a period, failing to report changes within 14 days (Centrelink can raise a debt for overpayments), and not claiming available deductions for self-employment income. If you make a mistake, correct it as soon as possible by calling Centrelink on 132 850. Voluntary disclosure of errors is treated much more favourably than errors discovered during a compliance review.
Useful Tools
- Income Test Calculator
- JobSeeker Payment Calculator
- Age Pension Calculator
- Centrelink Partner Calculator
- Centrelink Payment Rates
Resources
- Services Australia — Income Test for Pensions (servicesaustralia.gov.au)
- Services Australia — Income Test for Allowances (servicesaustralia.gov.au)
- Department of Social Services — Guide to Social Security Law (guides.dss.gov.au)