At tax time, working more than one job can be confusing. What can you claim? How much tax will you have to pay? Will you be penalised? The truth is most people don’t know the answers to these questions. Rest assured though, after five minutes of your time, you’ll know exactly why you’ll need to do.
One of the most important things to know is whether to claim the tax-free threshold or not.
What Is The Tax-Free Threshold?
In Australia, the tax-free threshold is $18,200. This means that if you earn $18,200 or below, you are not obligated to pay income tax. When you earn more than $18,200, you’ll need to start paying income tax on the excess.
As a quick rule of thumb, if you earn more than $350 a week; $700 a fortnight; or $1,517 a month, you’ll need to pay income tax.
When you start working, your employer will ask you to fill out a Tax File Number Declaration Form to complete before you start work. You’ll need to state if you want to claim the tax-free threshold on this form. If you only have one employer – state YES.
Your employer will then take out income tax and pay it to the Australian Taxation Office (ATO) on your behalf with each pay period. If, at the end of the financial year, you have earned less than $18,200 you can claim back all your tax payments. If you’ve earned over $18,200, you’ll need to pay income tax but your employer should have deducted enough tax to get a small refund. You can claim your work expenses as tax deductions in order to reduce the tax payable further, resulting in getting more of your tax back.
Pro Tax Tip: Don’t forget, payments from Centrelink are taxable income. They will ask you to fill out the same form if you receive payments from them.
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If You Have More Than One Employer
Some people work more than one job at the same time, or you may earn an income from one employer and also receive a taxable pension or government allowance.
The ATO require that you only claim the tax-free threshold from one employer, or payer. To do this, claim the tax-free threshold on the amount you earn the highest salary or wage from. This means you will have tax deducted at the lowest marginal tax rate (no tax-free threshold) for your income bracket. On the tax file number application form for the other employer or payer, select No for claiming the tax-free threshold. Your second employer will withhold tax from a higher marginal tax bracket. This is done to ensure you’ll be able to meet your end-of-year tax liabilities and reduce the likelihood of owing tax.
If you’ve paid too much tax, you’ll be able to claim the overpayment when you lodge your tax return.
If You Earn $18,200 Or Less
If you start your job and you think you won’t earn over $18,200, choose the tax-free threshold from each payer. If you end up earning more than $18,200 for the financial year, you’ll need to fill out a withholding declaration and give it to your employer. Your employer will then know you want to stop claiming the tax-free threshold from that payer and will start deducting additional tax.
Paying Too Much Tax?
If you end up earning more than $18,200 per year and your employer or payer has withheld too much tax, you can apply to have the tax withheld reduced by completing and lodging a PAYG withholding variation application.
The ATO will then make calculations on how much tax you’re overpaying and let your employers or payers know.
Pro Tax Tip: Only do this if you’re sure of your income amounts or are disadvantages by current withholding rates. Typically, this form may be filled in when you are claiming negative gearing on an investment property and you don’t want to wait until you lodge your tax return to get your additional tax back.
Paying Too Little Tax?
Sometimes too little tax was paid and you’ll need to pay extra to cover your tax liability. It’s best to avoid a tax liability. Keep an eye on your income and rates and advise your employer or payer to increase your PAYG withholding tax. Pro Tax Tip: You can notify your employer or payer to increase your tax amounts via email, or a paper or computer-based form. You can also set extra money aside and pay it when you lodge your tax return.
Marginal Tax Rates
In Australia, marginal tax rates are set by the ATO and work on a percentage of your overall earnings. For each dollar you earn over the tax-free threshold, you’ll be obligated to pay a certain amount.
The highest marginal tax rate in Australia is 45% for taxable incomes of $180,001 and over. You’ll be obligated to also pay an amount for the Medicare Levy and/or Medicare Levy surcharge.
There are different marginal tax rates for residents, foreign residents, children and working holiday makers.
Resident tax rates for the 2021-22 income year (not including 2% Medicare surcharge)
| Taxable Income | Tax On This Income |
| 0 – $18,200 | Nil |
| $18,201 – $45,000 | 19 cents for each $1 over $18,200 |
| $45,001 – $120,000 | $5,092 plus 32.5 cents for each $1 over $45,000 |
| $120,001 – $180,000 | $29,467 plus 37 cents for each $1 over $120,000 |
| $180,001 and over | $51,667 plus 45 cents for each $1 over $180,000 |
Foreign resident tax rates for the 2021-22 income year
| Taxable Income | Tax On This Income |
| 0 – $120,000 | 32.5 cents for each $1 |
| $120,001 – $180,000 | $39,000 plus 37 cents for each $1 over $120,000 |
| $180,001 and over | $61,200 plus 45 cents for each $1 over $180,000 |
Working holiday maker tax rates for the 2021-22 income year
| Taxable Income | Tax On This Income |
| 0 – $45,000 | 15% |
| $45,001 – $120,000 | $6,750 plus 32.5 cents for each $1 over $45,000 |
| $120,001 – $180,000 | $31,125 plus 37 cents for each $1 over $120,000 |
| $180,001 and over | $53,325 plus 45 cents for each $1 over $180,000 |
If You’re Under 18
There are special rules for people earning an income under 18 years. Some of the tax you pay might be at a higher marginal rate to discourage adults from using children and diverting tax. In most instances, you’ll pay tax at the same rates as an adult if you are deemed an ‘excepted person’ and have an ‘excepted income’ such as income earned from wages.
Tax Deductions
Tax deductions are claimed when you lodge your end-of-year tax return. Some tax deductions that you may have incurred throughout the year may include:
- Working from home expenses
- Phone and internet charges
- Sponsorships, donations or gifts to charities
- Subscriptions or union fees
- Travel expenses
- Car expenses
- Self-education
- Tax agent fees and the cost or organising your tax affairs
Pro Tax Tip: In order for you to claim your work expenses, you’ll need to prove your claim by supplying receipts, contracts, financial documents and bank statements. The expense must be work-related either in whole or in part and only the business proportion can be claimed. You must also have already incurred the expense.
Come tax time, you don’t have to worry if you don’t know any of this. An ITP Accounting Professional will walk you through everything you need to know, from ensuring you pay the right amount of tax to making sure your claim all of your tax deductions so you don’t pay more tax than you have to. Phone 1800 367 487 and chat with a Professional today.