Tax free threshold 2024

The tax free threshold sets a limit on the income someone can earn in a financial year before they are liable to pay taxes. In Australia, individuals can earn up to $18,200 between July 1st and June 30th of the following year without being subject to taxation, regardless of the source of their income.

If you have two jobs within a year, it’s advisable not to claim the tax free threshold for the second job. Doing so could result in not paying taxes on the full $36,400 (which you should be paying), potentially leading to owing money to the Australian Taxation Office (ATO). It’s important to note that when you claim the tax free threshold on a second job, your employer lacks the means to determine whether you’ve already claimed it elsewhere, your total earnings, or the taxes you’ve paid.

Once your earnings exceed the tax free threshold, you’re subject to a predetermined percentage of tax based on the tax bracket you fall into. Therefore, it’s crucial to claim the threshold only once, as having income from two jobs could push you into a higher tax bracket. The higher the tax bracket, the more tax you owe at tax time.

Understanding Tax free threshold while having two income sources with an example

Maria works part-time as a café barista, earning $34,000 for the year. Additionally, she works casually as a server for an event catering business, earning $20,000 per annum.

If he were to claim the tax-free threshold for both jobs:

Income source 1Income Source 2Total
Taxes Paid on income source 1: $3,002Taxes Paid on income source 2 considering he claimed tax free threshold for it: $342Tax Paid: $3,344

Now she owes owes: $4,673 more to Australian taxation office
Understanding Tax free threshold while having two or more income sources

How does the tax-free threshold works if you switch jobs within a year?

Typically, when you transition between jobs within the financial year, you would have likely claimed the tax free threshold for your initial job but refrained from doing so for the second job you have applied for. While this approach may have resulted in higher tax deductions and less take-home pay from the second job, it’s important not to continue foregoing the threshold for your new job in the upcoming financial year.

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Therefore, as the new financial year commences, it’s advisable to touch base with your HR department and request assistance in completing another Tax Declaration Form to claim the tax free threshold for your new employment.

How to safeguard yourself from tax liability?

If you’ve had multiple employers throughout the financial year and aim to avoid owing taxes to the ATO, ensure that you only claim the tax-free threshold once throughout the entire financial year (from July 1st to June 30th). Additionally, you can explore claiming any work-related tax deductions to lessen your tax obligations. Our accountants are available to assist you in identifying potential deductions based on your occupation. Simply log in to your Etax account, input your details, and the rest would be handled by their team.

What happens if i don’t claim the tax free threshold

Not claiming the tax free threshold means you’ll pay more tax on your income as you earn it. However, it also reduces the likelihood of owing taxes at the end of the tax year. In fact, you might even receive a tax refund, and it could be a larger one compared to if you had claimed the threshold.

What happens if you claim tax-free threshold on 2 jobs?

If you claim the tax-free threshold on two jobs, your second employer will withhold tax from your earnings at a higher rate, known as the second job tax rate. This is because they assume you have already claimed the tax-free threshold with your first job. Essentially, your second employer adjusts the withholding tax to compensate for the fact that you are already benefiting from the tax-free threshold with your primary job.

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Do I say yes or no to tax-free threshold?

If you expect to earn less than the tax-free threshold in a financial year, you should select “yes” to claim the tax-free threshold on your withholding declaration. This ensures that the correct amount of tax is withheld from your pay.

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