Your income and the tax-free threshold
Your income may come from one or more payers at the same time. Payers include employers, government agencies, or work you do as a sole trader.
You can choose to claim or not claim the tax-free threshold ($18,200) on the income you earn.
If you claim the tax-free threshold:
- you will not pay tax where your income is under $18,200
- your payer will withhold tax when you earn above $350 per week, $700 per fortnight or $1,517 per month.
When to claim the tax-free threshold
If you have more than one payer at the same time, generally, you only claim the tax-free threshold from one payer. Usually, you claim the tax-free threshold from the payer who pays you the highest salary or wage.
You may receive your income from 2 or more payers at the same time, if you:
- have a second job or more than 2 jobs
- have a regular part time job and also receive a taxable pension or government allowance
- are working under an ABN as a contractor, sole trader or other business structure.
Second job or payer
Where you have more than one payer and expect to earn above $18,200 from all sources, you should advise your other payers to withhold tax from your income at a higher rate. This is the 'no tax-free threshold' rate.
You will need to complete and lodge a PAYG withholding variation application. Your request should be in writing but you can send it as an email request, a paper or online form.
Doing this reduces the chance of you having a tax debt (tax bill) at the end of the income year. See, Why you may receive a tax bill.
Change of job during the income year
If you change jobs during the income year your previous employer stops paying you. This means you will no longer be claiming the tax-free threshold from them. You can claim the tax-free threshold from your new payer even if you have claimed it from your previous employer.
To choose whether to claim the tax-free threshold from your new employer complete a tax file number (TFN) declaration. Your payer will work out how much tax to withhold from their payments to you.
We will work out your total tax payable at the end of the income year when you lodge your tax return.
Example: changing jobs
Hamid has just completed his university degree and has found a job as a graduate in the public service. During December and January Hamid keeps working at his part time job in a café until he starts in a graduate position in February.
He has claimed the tax-free threshold from his café job from July to January. When he quits his café job and starts his graduate position he claims the tax-free threshold from his new employer from February.
End of exampleTax withheld from all income sources
When you lodge your tax return we assess all the income you earn and the tax withheld amount. Sometimes the total tax withheld may be more or less than the amount you need to meet your end-of-year tax liability, if:
- your income is $18,200 or less, you can claim the tax-free threshold
- too much tax is withheld, it may result in a tax refund
- too little tax is withheld, you may receive a tax bill to pay the difference.
Depending on your circumstances, you can request a change to the amounts of tax withheld from your income. This will help you to match your end-of-year tax liability more closely.
If your income is $18,200 or less
If you're certain your total income for the income year from all your payers will be $18,200 or less, you can choose to claim the tax-free threshold from each payer.
If you do this and your total income later increases to above $18,200, you'll need to provide one of your employers with a withholding declaration. The withholding declaration will advise them you want to stop claiming the tax-free threshold from that payer.
Example: income of $18,200 or less
During the 2023–24 income year Jeff has a:
- taxable pension of $384.61 per fortnight ($10,000 for the income year)
- part-time job earning $307.69 per fortnight ($8,000 for the year).
Jeff claims the tax-free threshold on his pension and no tax is withheld during the year.
If Jeff doesn't claim the tax-free threshold through his employer for his part-time job, $64 per fortnight would be withheld.
Assuming that Jeff doesn't have other income, his taxable income for the income year will be $18,000. His tax payable at the end of the income year would be nil ($0). He would receive a refund of the total tax withheld when he lodges his 2024 income tax return.
If Jeff expects to receive the same income for the next income year, he could choose to claim the tax-free threshold for his part-time job as well through his employer, so that no tax is withheld from payments made to him. He can do this by completing a withholding declaration and providing it to his employer.
End of exampleIf too much tax is withheld
If your income is more than $18,200 and too much tax was withheld in the income year, you can apply to reduce the amount of tax withheld from your payments.
You will need to complete and lodge a PAYG withholding variation application. Your request should be in writing but you can send it as an email request, a paper or online form.
When we receive your application, we'll calculate the variation amount and provide your payers with new instructions for withholding your tax.
You should only apply for this variation if you're certain of your income amounts and are disadvantaged by the current withholding rates.
Example: too much tax withheld during the year
Sue has 2 jobs during the 2023–24 income year. As a part-time retail sales assistant, she earns $615.38 per fortnight ($16,000 for the income year). She also works in a restaurant earning on average $384.62 per fortnight ($10,000 for the income year).
Sue claims the tax-free threshold from her retail employer and has no tax withheld.
As Sue doesn't claim the tax-free threshold from her restaurant employer, $82 per fortnight is being withheld. In total $2,132 was withheld for the income year.
Since Sue doesn't have any other income, her tax payable or refundable when she lodges her tax return would be calculated as follows:
|
Taxable income |
$26,000 |
|
Income tax payable on $26,000 |
$1,482 |
|
Less, Low income tax offset |
$700 |
|
Plus, Medicare levy |
$0 |
|
Total tax and Medicare levy |
$782 |
|
Credit for total tax withheld |
$2,132 |
|
Tax refund due to Sue |
$1,350 |
The tax refund of $1,350 arises because too much tax was withheld from Sue's income from her employers during the income year.
If this situation is likely to continue, Sue can apply to us for a withholding variation to reduce the amounts of tax withheld. So, Sue will receive extra net pay during the income year, rather than receiving a large tax refund at the end of the income year.
End of exampleIf too little tax is withheld
Sometimes the total tax withheld from your payments may be too little to cover your tax liability for the income year.
To avoid an end-of-year tax debt, you can ask one or more of your payers to increase the amount they withhold from your payments. You will need to complete and lodge a PAYG withholding variation application. Your request should be in writing but you can send it as an email request, a paper or online form.
Example: too little tax withheld
Pierre receives a taxable pension and has a part-time job. Over the course of the 2023–24 income year, he receives:
- $30,000 from the pension – Pierre's payer applies the tax-free threshold to his fortnightly payments
- $30,000 from the part-time job – Pierre's employer applies no tax-free threshold to his fortnightly payments.
|
Income type |
Taxable annual income |
Fortnightly income |
Fortnightly tax withheld |
|---|---|---|---|
|
Pension |
$30,000 |
$1,153.84 |
$106.00 |
|
Part-time job |
$30,000 |
$1,153.84 |
$272.00 |
|
Total |
$60,000 |
$2,307.68 |
$378.00 |
At the end of the income year, the total tax withheld from Pierre's income will be $9,828 ($378 × 26).
When Pierre lodges his tax return for the income year, the actual amount of income tax he has to pay, or tax refundable to him, will be calculated as follows:
|
Taxable income |
$60,000 |
|
Income tax payable on $60,000 |
$9,967 |
|
Less, Low income tax offset |
$100 |
|
Plus, Medicare levy (2% of $60,000) |
$1,200 |
|
Total tax and Medicare levy |
$11,067 |
|
Credit for total tax withheld |
$9,828 |
|
Tax payable |
$1,239 |
Pierre will have a tax debt of $1,239 as insufficient tax was withheld during the income year.
Pierre can ask one or both of his payers to withhold extra tax to cover the shortfall. Alternatively, he can put money aside to ensure that he can pay his tax bill when it falls due.
End of example