When it comes to claiming the tax-free threshold, many of you may have questions regarding how and when you can claim the threshold and how having more than one job can affect claiming the tax-free threshold. To know the answers to these questions, continue reading this blog.
How to Claim the Tax-Free Threshold?
The tax-free threshold is typically claimed on the first $18,200 of income you make during the tax year. This is known as the tax-free threshold. Your income may come from one or more payers, including a government agency, an employer, or work you undertake with an ABN. The amount of tax deducted from your income is reduced if you claim the tax-free threshold ($18,200).
Each income year, you are eligible to claim the tax-free threshold if you are considered an Australian resident for tax reasons. On your tax file number (TFN) declaration that you submit to your payer (including Centrelink), you have the option of claiming or not claiming the tax-free threshold. If you choose to do so:
- if your income is under $18,200, you’ll not pay tax
- when you make money over $18,200, your payer will withhold tax.
The tax-free threshold is equal to income:
- $350 a week
- $700 a fortnight
- $1,517 a month.
When Can You Claim the Tax-Free Threshold?
At the same time, if you have more than one payer, then you are allowed to claim a tax-free threshold only from one payer. Generally, you are allowed to claim the tax-free threshold from the payer who pays you the highest wage or salary. You may receive earnings from 2 or more payers simultaneously if you:
- have more than one job
- have a regular part-time job and get a taxable pension or government allowance
- are working under an ABN as a sole trader, contractor, or other business structure.
In addition to this, you must check the tax and super obligations you have as a contractor in comparison with employees. When you have more than one payer, you need to suggest your other payer withhold tax from your earnings at a higher rate. This is known as the ‘no tax-free threshold’ rate. When you do this, it will reduce the chance of you having a tax debt at the end of the financial year.
Sometimes the aggregated tax withheld from all sources may be less or more than the amount you may need to meet tax liability at the end of the year. When you file your income tax return, the ATO assesses the tax withheld amount and:
- it may result in a tax refund if too much tax was withheld
- if you have not had sufficient tax withheld, then you will get a tax bill to pay the difference.
Based on your situation, you can request to make changes to the amounts of tax withheld from your income. It will help you meet the end-of-year tax liability.
If your earning is $18,200 or less
You can claim the tax-free threshold from each payer if your earning is $18,200 or less. If you do this and your aggregated income later increases to over $18,200, then you need to give a withholding declaration to one of your employers. The withholding declaration will suggest them you don’t want to claim the tax-free threshold from that payer.
If too much tax is withheld and your income is above $18,200
If your income is over $18,200 and too much tax is withheld in the income year, you are allowed to apply to minimise the tax withheld amount from your payments. You’ll need to prepare and file a PAYG withholding variation application with the ATO. When the ATO receives your application, they will calculate the variation amount and offer your payers new guidelines for withholding your tax.
In case too little tax is withheld
Sometimes the aggregated tax withheld from your payments may be not too much to cover your tax liability for the income year. To avoid tax debt at the end-of-year, you can request one or more of your payers to maximise the amount they withhold from your payments. If you don’t know about this procedure, you can seek help from taxation accountants.
If you are Resident of Australia for Part of the Year
If you are a resident of Australia for tax purposes during the income year, you’ll receive a tax-free threshold for a part of the year. Basically, it has two components:
- a flat amount of $13,464
- a further $4,736 – the ATO will work based on how many months you spent in Australia during the tax year, including the month you arrived.
The blog outlines how more than one job can affect claiming tax-free thresholding. Moreover, if you want to know more about this, you can contact Reliable Melbourne Accountants.