Should I claim the tax free threshold if I have two jobs in Australia?
No, generally you should only claim the tax-free threshold with one employer in Australia if you have two jobs. Claiming it with both can lead to insufficient tax being withheld, potentially resulting in a tax debt at the end of the financial year.
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How it works in practice
Understanding the Tax-Free Threshold
The the tax-free threshold in Australia is a key part of the income tax system. It allows you to earn up to a certain amount ($18,200 for most residents) each financial year without paying income tax on that portion of your earnings. When you start a job, you typically complete a Tax File Number Declaration form where you can elect to claim this threshold.
Why Claiming it Twice Causes Issues
If you have two jobs and claim the tax-free threshold with both employers, each employer will assume you are only earning income from them up to $18,200 and will withhold less tax from your pay. However, the tax-free threshold applies to your total assessable income across all sources. This means that by the end of the financial year, the combined amount of tax withheld from both jobs will likely be less than your actual tax liability, resulting in a tax bill from the Australian Taxation Office (ATO). To avoid this, it's crucial to only claim the threshold with your highest-paying or primary employer.
Important exceptions
You might consider claiming the tax-free threshold with both employers only if your total combined income for the financial year is confidently expected to be less than the $18,200 threshold. Additionally, if you change jobs part-way through the year and your total income from all employers remains below $18,200, claiming it with a new employer might not lead to a debt. Always assess your individual income circumstances carefully, as even slight over-earnings can lead to a tax debt. Most people with two jobs should only claim it once to ensure correct tax withholding.
What you should do now
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Identify your primary employer, usually the one from whom you expect to earn the most income during the financial year. You should claim the tax-free threshold with this employer.
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On your Tax File Number Declaration form for your second job, select "No" when asked if you are claiming the tax-free threshold.
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Monitor your payslips from both jobs to ensure the correct amount of tax is being withheld according to your tax-free threshold declaration.
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Access your myGov account linked to the ATO to review your year-to-date tax summary and proactively identify any potential under-withholding.
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If you find you are under-withholding tax, consider submitting a new Tax File Number Declaration or a "Withholding variation application" to the ATO to increase the amount of tax taken from your pay.
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