Your Income and the Tax-Free Threshold
You may receive income from one or more payers simultaneously. Payers include government agencies, employers, or your work as a sole trader. You can claim or not claim the tax-free threshold ($18,200) on the income you receive. If you choose to claim the tax-free threshold:
- You won’t pay tax if your income is $18,200 or less.
- Your payer will withhold tax when you receive income above $363 per week, $726 fortnight or $1,673 per month.
When Can You Claim the Tax-Free Threshold?
If you have multiple payers at the same time, you only claim the tax-free threshold from one payer. You are liable to claim the tax-free threshold from the payer who pays you the highest salary. You may have more than one payer at the same time, if you:
- Have more than one job
- Have a part-time job and receive a taxable pension
- are working under an ABN as a sole trader, contractor, or other business structure.
To know about your eligibility to claim the tax-free threshold, you can contact the best accountants in Melbourne.
Second Job or Payer
If you have multiple payers and expect to receive above $18,200 from all sources, you need to advise your other payers to withhold tax from your income at a higher rate. This is called the ‘no tax-free threshold’ rate. You may have to complete and file a PAYG withholding variation application. You need to send a request in writing, but as an email request, an online form, or on paper. This can reduce the risk of you having a tax debt at the end of the income year.
Change of Job During the Income Year
If you change jobs during the income year, and your previous payer stops paying you, this means you will no longer claim the tax-free threshold from them. Claiming tax-free threshold from your new payer even if you have claimed it from your previous payer. To choose whether to claim the tax-free threshold from your new payer, make sure to complete a tax file number declaration. Your payer will check how much tax to withhold from their payments to you. The ATO will check your total tax payable at the end of the income year when you file your tax return.
Moreover, to file a tax return, make sure to seek help from a professional tax return accountant.
Tax Withheld from All Income Sources
When you file your tax return, the ATO will assess all the income you receive and the tax withheld amount. Sometimes, the total tax withheld may be more or less than the amount you are required to meet your end-of-year tax liability, if:
- your income is $18,200 or less, you are liable to claim the tax-free threshold.
- Withheld too much tax, which may lead to a tax refund.
- Withheld too little tax, you may obtain a tax bill to pay the difference.
Depending on your circumstances, you can request a change to the tax amount that is withheld from your income. It can help you to match your end-of-year tax liability more closely.
If your income is $18,200 or less
If you are certain that your aggregated income for the specific income year from all your payers will be $18,200 or less, you can claim the tax-free threshold from each payer. If you do this and your total income later exceeds $18,200, you will have to provide one of your employers with a withholding declaration. The withholding declaration will advise them that you need to stop claiming the tax-free threshold from that payer.
If too much tax is withheld
If your income is above $18,200 and too much tax was withheld in the income year, you can apply to reduce the amount of tax withheld from your payments. You are required to file a PAYG withholding variation application. After receiving your application, the ATO will calculate the variation amount and provide your payers with new instructions for withholding your tax.
If too little tax is withheld
Sometimes, the total tax withheld from your income may be too little to cover your tax liability for the income year. In this case, you can ask one or more of your payers to maximise the amount they withhold from your income.