The tax-free threshold¶

Not all of a person's income is taxed. The tax-free threshold is the part of an Australian resident's yearly income on which no tax is withheld. The ATO says that, for an Australian resident, the first $18,200 earned in a year is usually tax free.

An employee chooses whether to claim the tax-free threshold, and they do it on their tax file number (TFN) declaration. The key rule is that they should generally claim it from only one employer — usually their main job.

In one line

The tax-free threshold is the part of yearly income with no tax withheld — claimed from one employer, usually the main job, on the TFN declaration.

Why this matters¶

Employees often ask why more tax comes out of a second job than a first one. The answer is usually the tax-free threshold — it is claimed at the main job, not the second one. Understanding this helps you set up new employees correctly and answer that common question.

What you will learn¶

What the tax-free threshold is
How an employee claims it
Why claiming it at more than one job can cause a tax bill

Understanding the concept¶

The tax-free threshold is the amount of income a person can earn in a financial year before any tax is withheld. The ATO explains that for an Australian resident the first $18,200 earned in a year is usually tax free. By claiming it, the employee has less tax taken out of their pay.

An employee tells you whether they are claiming it on their TFN declaration — the form they fill in when they start. If they answer Yes, you withhold less tax, because the tax-free part of their income is taken into account. If they answer No, tax is withheld from the first dollar.

The important rule is that a person should generally claim the tax-free threshold from only one employer at a time. The ATO says this is usually the employer that pays them the most — normally their main job. At any second job, they usually do not claim it, so more tax is withheld there.

The reason is simple. The tax-free part of a person's income can only be counted once across the whole year. If an employee claims it at two jobs at the same time, both employers hold back too little tax, and the shortfall can turn into a tax bill when the employee lodges their tax return. Whether to claim it, and where, is the employee's own choice — if they are unsure, point them to the ATO.

For accountants & bookkeepers

The tax-free threshold is applied through the payee's tax treatment as recorded from their TFN declaration, which selects the withholding schedule the employer uses. Claiming at more than one payer effectively duplicates the threshold across payers and under-withholds overall; the ATO reconciles the position at assessment, which is where the shortfall surfaces. An employee who expects a shortfall can ask a payer to withhold at a higher rate. Do not advise a specific employee which payer to claim from — it is their decision, and the ATO is the authority.

Example¶

Sam has two part-time jobs. The café is Sam's main job and pays the most, so on the café's TFN declaration Sam claims the tax-free threshold. Less tax is withheld from that pay.

At the second job, a weekend shop, Sam does not claim the tax-free threshold. More tax is withheld there, which looks higher than the café even for similar hours. This is normal. Because Sam claimed the threshold at only one job, the right amount of tax is being withheld overall, and Sam is less likely to face a surprise tax bill at year end.

Common mistakes¶

Claiming the tax-free threshold at two jobs at once — this under-withholds and can cause a tax bill at year end.
Thinking a second job is taxed unfairly — the higher tax is because the threshold is usually claimed at the main job, not the second one.
Assuming the employer decides where to claim it — it is the employee's choice, made on their TFN declaration.

How this works in myaccountant¶

In the app — when you record an employee's answers from their TFN declaration, you tell myaccountant whether they are claiming the tax-free threshold. When you run a pay run, the app uses that answer to work out the tax to withhold, so an employee who claims it has less tax taken out. The tax withheld appears on the payslip you can email to the employee.

Key points¶

The tax-free threshold is the part of yearly income with no tax withheld.
For an Australian resident, the ATO says the first $18,200 a year is usually tax free.
An employee claims it on their TFN declaration by answering Yes.
It should generally be claimed from one employer only — usually the main job.
Claiming it at more than one job at once can cause a tax bill at year end.
Whether and where to claim it is the employee's choice — direct them to the ATO.

Learn next¶

General information only — not tax, super or financial advice.

Did this answer your question?