Inflation has hit hard, and though you probably already have a day job, you may be looking at extra ways to earn an income. A second job can be a viable option to gain some extra cash, but what if you’re hit with extra taxes? Is it even worth the effort? Let’s dive in and find out.
By the time you reach the end of this article, you’ll have a thorough understanding of how a second job affects your taxes. Hopefully, we’ll have cleared up any concerns you have about the second job tax rate, helping you feel more confident in your otherwise promising side gig.
To get started, we need to quickly cover the basics of the tax-free threshold.
What is the tax-free threshold?
One of the first things you do when you get a job is fill in a Tax File Number declaration form. Here, you’ll be asked if you want to claim the tax-free threshold. This should typically be marked “YES” if this is your only job or your major employer. That means that your employer will remit less tax based on your tax-free threshold claim.
Currently, the tax-free threshold in Australia is $18,200. So if you earn this amount or less in a given financial year, any tax you pay will be refunded to you. You’ll still need to lodge a tax return, but your tax will be nil.
The tax-free threshold is equivalent to earning:
- $350 a week
- $700 a fortnight
- $1,517 a month.
Do you claim the tax-free threshold on a second job?
The answer is generally no. You should claim the tax-free threshold for one employer only. So if you have multiple employers, it’s best to go for the one who gives you the highest pay cheque.
If you can’t claim the tax-free threshold again, what’s the second job tax rate?
You’ll be taxed at the higher marginal tax rate. You will need to answer “NO” to the question asking if you want to claim the tax-free threshold in your second employer’s Tax File Number Declaration Form. While this means you will pay more tax on your earnings, it’ll minimise the chances of you ending up with a tax bill or tax debt when you lodge your tax return.
Pro Tax Tip: If you earn less than $18,200 from two or more employers, you can elect to claim the tax-free threshold of $18,200 from both.
The tax brackets applicable to Australian residents for tax purposes are:
Resident tax rates 2022–23
| 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 |
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Why should I not just claim the tax-free threshold on all jobs?
If you claim the tax-free threshold with all of your employers, they may not take out enough tax throughout the year. This would leave you with a bill when it comes time to lodge your tax return.
How does this work?
When filling out your tax return, you’ll end up combining all your assessable income. However, throughout the year, if you have two or more jobs, it’s harder to work out precisely how much tax you’ll need to pay. If you have other streams of income in the mix, this can make it increasingly likely that you’ll end up paying too little tax during the year. If that happens, the ATO would expect you to pay a tax bill.
Since these matters can get complicated, it’s a good idea to seek advice from a certified tax agent before you tick any boxes on your Tax File Number declaration form. One of ITP’s skilled accountants can help you calculate your tax obligations and advise how much your employer should be withholding. You can then ask your employer or their payroll team to take a greater amount of tax if needed to cover your tax obligations. If you could use some help setting up your taxes for a second job, use our online booking system to find your nearest branch and make an appointment with a local tax accountant.
Pro Tax Tip: Only share your Tax File Number with your employer after you’ve officially started work. They’ll need it to meet your tax and super payments.
What happens if too much tax is withheld?
Let’s use an example to illustrate what happens when your employer withholds more tax than you need to pay.
In the 2022 financial year, Sue has 2 jobs. 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 withheld. In total, $2,132 is withheld for the income year.
| Taxable income | $26,000 |
| Income tax payable on $26,000 | $1,482 |
| Less, low-income tax offset | $700 |
| Less, low and middle-income tax offset | $675 |
| Plus, Medicare levy | $263.50 |
| Total tax and Medicare levy | $370.50 |
| Credit for total tax withheld | $2,132.00 |
| Tax refund due to Sue | $1,761.50 |
Sue will receive a refund of $1,761.50 as too much tax was withheld. If the situation continues, Sue can ask the ATO for a withholding variation to reduce the tax withheld.
What happens if not enough tax is withheld?
The following example illustrates what would happen if your second employer didn’t withhold enough tax during the financial year.
Pierre receives a taxable pension and has a part-time job. He receives:
- $30,000 from the pension – Pierre’s payer applies the Medicare levy and tax-free threshold to his fortnightly payments
- $30,000 from the part-time job – Pierre’s employer applies the Medicare levy and no tax-free threshold to his fortnightly payments
At the end of the income year, the total tax withheld from Pierre’s income is $9,428. When Pierre lodges his tax return for the income year, the actual amount of income tax he has to pay will be calculated as follows:
| Taxable income | $60,000 |
| Income tax payable on $60,000 | $9,967 |
| Less, low-income tax offset | $100 |
| Less, low and middle-income tax offset | $1,500 |
| Plus, Medicare levy (2% of $60,000) | $1,200 |
| Total tax and Medicare levy | $9,567 |
| Credit for total tax withheld | $9,428 |
| Tax payable | $139 |
Pierre has a tax bill of $139 and can ask both employers to vary his tax withholding. He can also set aside the money to ensure he can pay the tax bill when it arises.
What are the benefits of a second job?
A second job will allow you to claim tax deductions against the costs you’ve incurred through earning your extra money. So on top of the extra cash you’re bringing in, you’ll be able to declare every dollar earned against in your tax return.
Just remember, you must have spent the money (with the records to prove it) to claim something as an expense. Also, you can only claim eligible, work-related expenses.
Some of the relevant tax deductions to look out for include car and travel expenses, working-from-home expenses, clothing, and self-education costs. If your extra job is a side hustle or you open your own business, you may be able to claim capital assets under depreciation. You can generally also claim phone, data, and internet expenses. To learn more about what you can and can’t claim when working for yourself, visit our guide to tax deductions for sole traders.
Pro Tax Tip: You can claim the cost of travelling from one workplace to your second job. Just be sure it is a direct journey without any breaks or stops at home first.
How to handle your taxes when you have a second job
It’s best to look at a second job as part of your overall employment when it comes to tax. The end result of claiming the tax-free threshold on your primary job and not on the other is no different than earning the total through one job. You may just pay more tax up-front on the second job but then receive a larger refund come tax time. Indeed, you may even be able to claim more tax deductions on the second job, giving you an even healthier refund than you imagined!
Taxes can be complex, but they’re far less stressful if you get them right up front. In doing so, you can avoid paying too much or too little tax, making tax season less daunting. If you’re unsure about whether you’re doing the right thing with your second job, contact an ITP tax agent for advice. We can help you understand your obligations and make the right decisions. If you have any other questions about your taxes, we’re more than happy to help. Phone 1800 367 487 for a no-obligation chat today.