Two Jobs, One Tax-Free Threshold

Working a second job can be a great way to boost your income, but it can also create unexpected tax consequences. Understanding how the tax-free threshold works can help you avoid an unwelcome surprise at tax time.

Why Your Tax Bill Might Be Higher Than Expected

If you've worked more than one job this financial year, your tax return may not deliver the outcome you're expecting. It's a common situation that catches many Australians by surprise.

Every taxpayer is entitled to one tax-free threshold, which means the first $18,200 of income earned each year is tax-free. When starting a new job, you'll be asked whether you'd like to claim that threshold through your employer.

The issue arises when the tax-free threshold is claimed with two employers at the same time.

Each employer calculates tax as though they're your only source of income, effectively applying the tax-free threshold twice. While this can make your take-home pay look higher during the year, you're only entitled to claim the threshold once. When your incomes are combined at tax time, you may find that not enough tax has been withheld, resulting in an unexpected tax bill.

This can happen even if your jobs didn't overlap.

For example, if you leave one role, receive a leave payout, and start a new job shortly afterwards, both employers may apply the tax-free threshold during the same period. The result can be the same: insufficient tax withheld throughout the year. There is another factor to be aware of. Income from a second job is added to your existing earnings, which may push some of that income into a higher tax bracket than either employer has accounted for. Again, this can leave you with a tax shortfall at year end..

How to Avoid a Surprise

If you're working two jobs at the same time, it's generally best to claim the tax-free threshold from only one employer, usually the higher-paying role. The second employer can then withhold tax at the appropriate rate. While this may slightly reduce your take-home pay throughout the year, it can help you avoid an unexpected tax bill when you lodge your return.

If you've had more than one employer this year, or you're considering taking on a second job, it's worth having a conversation with us before tax time. We'll help you understand your position and make sure there are no surprises when it's time to lodge your return.

Avoid Tax-Time Surprises.

Had more than one job this year? A quick review now could save you an unexpected tax bill later.

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