Show download pdf controls
  • Why you may receive a tax bill

    You may receive a tax bill after if you haven't had enough tax withheld from your income during the year.

    On this page

    Reasons you receive a tax bill

    Common reasons you may receive a tax bill include if:

    • your employer hasn't withheld enough tax from the payments made to you as an employee
    • you're a sole trader and you haven't made enough tax payments to us during the year (also known as pay as you go instalments)
    • you receive other income where no tax was withheld (for example, money you receive from investment property or dividends)
    • a change in income affects your single or family income threshold and you need to pay the Medicare levy or Medicare levy surcharge (MLS)
    • the amount of private health insurance rebate you receive changes or is too much.

    Tax withheld from income amounts

    You may receive a tax bill if you have not had enough tax withheld from your income throughout the income year to meet your tax obligations. This may occur in the following circumstances:

    • you move to a higher tax bracket – for example, through promotion, multiple or extra sources of income
    • you have incorrectly made multiple claims for the tax-free threshold – for example, you have income from more than one job
    • your income increases leading to a higher repayment threshold for your study or training support loan
    • you have a study or training support loan that is didn't report to an employer on a tax file number declaration
    • you are the recipient of Australian Government allowances and payments.

    Tax is not withheld from the following income sources:

    • a capital gains event occurs where you receive additional income through the sale of a capital asset such as real estate or shares
    • you receive income from a What to do when the PSI rules apply
    • you earn income as a sole trader 
    • you receive income from property investments (including the sharing economy), dividends on shares, interest or returns on any other investment or you earn income as a sole trader.

    How to prevent a tax bill

    Most people who earn income as employees have tax payments made on their behalf throughout the income year through pay as you go (PAYG) withholding. These amounts help you to meet your annual tax obligations.

    However, if you earn income that does not have tax withheld or does not have enough tax withheld the following things could help you prevent a tax bill:

    Increasing tax withheld from payments

    If the total amount of tax withheld through PAYG withholding is not going to cover your estimated annual tax bill, you can ask one or more of your payers to increase the amount of tax they withhold. This is known as an PAYG withholding upward variation.

    Voluntary entry into PAYG instalments

    If tax is not withheld when you receive payments from income earned as a sole trader or investments, you can voluntarily enter into PAYG instalments. This is a way of prepaying tax and reduces the chances of having to pay a large amount at the end of the income year.

    We recommend voluntary entry into PAYG instalments if you are in your first year of business as a sole trader. You can arrange voluntary entry into PAYG instalments in ATO online (through myGovExternal Link).

    Tax prepayments

    You can make tax prepayments any time and as often as you like to make it easier for you to manage your tax. We will hold the prepaid amounts you make towards your expected bill unless you, or your agent, request a refund.

    Avoiding excess private health reduction or refund

    We calculate your correct entitlement to a private health insurance (PHI) rebate when you lodge your tax return. If you receive a larger rebate than you're entitled to, we will claim back the excess amount from you when you lodge your tax return. The amount will be shown at the Excess private health reduction or refund (rebate reduced) label on your notice of assessment.

    This occurs where your income for surcharge purposes is in a higher threshold than you expected and you've already received too much rebate (premium reduction).

    To avoid this, you can estimate your income for surcharge purposes for the income year and contact your private health insurer to nominate a new rebate amount. You may choose to receive less rebate (or no rebate) upfront as a premium reduction. This may avoid receiving a private health insurance liability when you lodge your tax return.

    If you overestimate your income and don't claim your full rebate as a premium reduction, we will pay you any remaining rebate as a refundable tax offset when you lodge your tax return.

    There are no penalties for making an incorrect rebate nomination with your health insurer.

    Consider the impact of selling a capital asset

    When selling a capital asset for a gain, consider the impact the gain will have on your assessable income. You may want to put aside enough to cover the extra tax payable or use one of the options identified above.

    Choose the approach that best suits your personal circumstances.

    How much tax to set aside

    Use our simple tax calculator to estimate how much tax you are likely to owe so you can plan how much money to set aside or pay through PAYG instalments or prepayments.

    Last modified: 16 Jun 2022QC 54461