Can I Claim the Tax-Free Threshold at Two Jobs?

Can I Claim the Tax-Free Threshold at Two Jobs?

Over the past decade or so, we’ve seen shifts in the workplace. One of these shifts is an increase in multiple-jobholders.  

It’s no longer odd to see a father at home with the kids on a Monday afternoon, a woman owning a billion-dollar company, or people (male or female) working for more than one employer at a time. No matter what the job situation may be, we all have one thing in common that we need to prepare for; taxes.

The ATO has created an income limit known as the tax-free threshold. This allows Australian workers to not be taxed on income earned up to a certain point. That limit is $18,200.

So, how do you claim this tax-free threshold at two jobs? Well, it depends.

How much of an income are you earning?

The ATO typically allows you to only claim the tax-free threshold from your primary source of income, or in other words, the job that earns you the higher salary.

If you have a secondary job that earns you a bit less income, that employer will withhold tax at the higher, ‘no tax-free threshold’ rate.

Is there an exception to the rule?

Isn’t there always? According to the ATO, if you are absolutely positive that your total income between both jobs will be less than the tax-free threshold of $18,200, then you can choose to claim the tax-free threshold at both jobs. Be extra careful when making this decision. If your second source of income causes you to exceed the threshold amount and wasn’t withheld at a higher rate of tax, then you could be faced with a tax debt at the end of the financial year to make up for the difference.

Let’s take a look at Brady’s tax situation:

Brady is employed as a nurse at his local hospital part-time. He also works the night shift as a doorman for a little extra income. As a nurse, he earns $12,000 per year, while the doorman gig earns him $6,000 per year. Together, this equals out to be less than the tax-free threshold. Therefore, he can claim the exemption from tax on both sources of income.

 

What if your primary source of income (alone) exceeds the tax-free threshold?

This is pretty common and nothing to worry about. Your employer should be familiar with this. Once the tax-free threshold is met for the year at your primary job, your employer will begin withholding at the tax rate associated with your specific tax bracket. This will be done automatically so that you do not need to keep track of each and every dollar earned.

Let’s take another look at Brady:

Starting this month, Brady was offered a full time nursing position with a raise and left his position as a doorman. He is now earning $30,000 per year. He can still claim the tax-free threshold at his nursing job, for his earnings up to $18,200. Once that threshold is met, his payer will begin taxing the remaining income at the ATO rate based on his total annual income.

 

So, how can you avoid overpaying or underpaying tax?

There are certain precautions that you can take so that you are paying just the right amount of tax:

  • Do not claim the tax-free threshold on the TFN declaration for both jobs. This is a standard form that you must complete when starting a new job. In Box 8, you are given the option of whether or not you will claim the tax-free threshold. Unless you earn under $18,200 at both jobs combined, you’ll only tick YES for your primary job (again, the one at which you earn more total in a year).
  • Know how much you earn in a year. This is important for more reasons than one. Whether you want to make sure you are being taxed correctly or think it’s time to negotiate a raise with your employer, this yearly figure, big or small, can mean a lot. It figures in all the calculations above – whether to claim the tax-free threshold at more than one job, as well as how much tax you expect to pay.

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