If you’re an Australian resident for tax purposes, you don’t have to pay income tax on the first $18,200 you earn each year from any source. This is known as the “tax-free threshold.” When you have multiple sources of income, it’s important to decide which one you will claim this threshold for. The ATO recommends claiming the tax-free threshold from your “main” payer – usually the job, gig, or payment that provides the most income during the year.

The main payer will not withhold tax on the first $18,200 they pay you but will start withholding tax once your total earnings exceed this amount. At the end of the financial year, the ATO will review your total income and tax withheld. If not enough tax has been withheld, you may receive a tax bill. Conversely, if more tax has been withheld than you owe, you will get a refund.

Claim the Tax-Free Threshold

When you start a new job, your employer should ask you to complete a withholding declaration. To claim the tax-free threshold, you need to be an Australian resident for tax purposes on the declaration and answer “yes” to the question “Do you want to claim the tax-free threshold from this payer?”. If you answer “no,” tax will be withheld from all income from that payer.

Avoid claiming the threshold from multiple payers unless you’re confident that your total earnings for the year will be less than $18,200. Overclaiming can increase your take-home pay in the short term but may result in a tax debt later.

Changing Jobs

If you change jobs, you can claim the tax-free threshold from your new employer, even if you previously claimed it from a different payer. If you take on a new job or side gig that will earn you more income than your current main payer, you can adjust your claim at any time.

Altering Your Tax-Free Threshold Claim

To change your tax-free threshold claim, use ATO online services through your myGov account:

1. Sign in to myGov and access ATO online services.
2. Select Employment from the menu.
3. Choose either New employment (for a new job) or Employment details (for an existing employer).
4. Update your tax and super details as needed.

Don’t Forget Your Side Gig

If you earn income outside of traditional employment, such as from being a sole trader, you will need to pay tax on that income yourself. Consider setting aside a percentage for tax or using pay as you go (PAYG) instalments each time you receive payment.