What is the Tax-Free Threshold, and How Do You Claim It?
In Australia, the tax-free threshold allows you to earn up to $18,200 each financial year without paying income tax. If you claim it correctly, you’ll pay less tax throughout the year by reducing how much your employer withholds from your pay. Most Australians are entitled to this benefit, but many either don’t claim it when they should, or accidentally claim it more than once,leading to unexpected tax bills at the end of the year.
If you’re wondering, “Should I claim the tax-free threshold?” The simple answer is: yes, if you have only one job or income source. If you have more than one, you usually claim it on your main job only.
Why the Tax-Free Threshold Matters
The tax-free threshold is one of the most important concepts for everyday Australian taxpayers, especially if you are working part-time, casually, or starting your first job. It directly affects how much tax is withheld from your paycheck and what your final tax return looks like.
- Claiming correctly: Ensures you don’t pay too much tax during the year.
- Claiming incorrectly: May result in a tax debt when you lodge your tax return.
In short, it pays to get this right.
How Does the Tax-Free Threshold Work?
The Basics
When you fill out a Tax File Number Declaration form for your employer, you’ll be asked if you want to claim the tax-free threshold.
If you claim it:
- Your employer will withhold less tax from your wages.
- You will receive more money in your regular pay.
If you don’t claim it:
- Your employer will withhold more tax, as if you were not entitled to the $18,200 tax-free amount.
- You will likely get a refund at tax time, provided your total annual income stays below or just above the threshold.
Important: One Job = One Claim
You should only claim the threshold from one employer at a time. If you have multiple jobs and claim it on all of them, you might underpay tax during the year, resulting in a debt later.
Example:
Sarah works two part-time jobs. She should only claim the tax-free threshold from the employer that pays her the most.
When Should You Claim the Tax-Free Threshold?
Scenario 1: First Job
If this is your first and only job, you should almost always claim it.
Scenario 2: Changing Jobs
When you change jobs, you’ll need to fill in a new Tax File Number Declaration. If it becomes your main or only job, claim the threshold on the new form.
Scenario 3: Multiple Jobs
If you have two or more jobs, only claim the threshold from your highest paying employer.
Scenario 4: Temporary or Short-Term Jobs
For temporary work or casual gigs, don’t claim the threshold unless it’s your main job.
What If You Accidentally Claimed It Twice?
Don’t panic. It’s common, especially for people juggling multiple jobs or working while studying.
When you lodge your tax return, the ATO will automatically work out how much tax you should have paid across all jobs. If you have underpaid, you’ll need to pay the difference. If you’ve overpaid, you’ll get a refund.
To fix it mid-year, you can update your Tax File Number Declaration with your employers to adjust your withholding going forward.
How the Tax-Free Threshold Impacts Your Tax Return
The threshold applies to your total annual income, not to each employer separately.
For example:
- You earn $15,000 from Job A (where you claimed the threshold).
- You earn $10,000 from Job B (where you did not claim it).
- Your total income is $25,000, which is above the tax-free threshold.
The ATO will assess your total income ($25,000) and apply the threshold just once, reducing your taxable income by $18,200. You’ll only pay tax on $6,800.
Tax-Free Threshold and Students, Part-Timers, and Casuals
If you’re a student, part-time worker, or casual employee, the tax-free threshold is still available to you. It can help reduce or even eliminate tax on your lower earnings.
However, you should still only claim it from one employer.
Key Takeaways
- The tax-free threshold is $18,200.
- Claim it on your main job only.
- Avoid claiming it from multiple employers.
- It reduces tax withheld from your paycheck.
- It affects your final tax position when you lodge your return.
Getting this right means smoother paychecks and fewer surprises at tax time.
Final Tip
When in doubt, you can always check the ATO website or speak to a registered tax agent. The rules are straightforward, but small mistakes,like double-claiming,can easily be avoided with good advice.
About The Author: Artur Osadchiy
Artur is a Certified Practising Accountant with over 30 years’ experience working as a trusted advisor to 600+ clients across Australia. Based in Melbourne, he started Tax Window with his wife Marina in 2009 and leads the firm’s tax and accounting team. In his free time, Artur enjoys watching the AFL (go Kangas!) and spending time with family.
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