If you are working two or more jobs casually or if you have overlapping contract work, you need to be careful to avoid an end of financial year tax debt.
With insecure, contract and casual work becoming increasingly common, particularly in the current COVID-19 affected economy. It is no surprise that many young and not so young Australians may have income from more than one job.
Currently, the tax-free threshold is $18,200, which means that if you’re an Australian resident for tax purposes, the first $18,200 of your yearly income is not subject to tax. This roughly equates to $350 per week, $700 a fortnight, or $1,517 per month in pay.
When you start a job, your employer will give you a Tax file number declaration form to complete which will allow you to claim the tax-free threshold to reduce the amount of tax withheld from your pay during the year.
The problem arises when you have two or more employers paying you a wage, and you claim the tax-free threshold for all the employers/payers, the total tax withheld from your payments may not be enough to cover your tax liability at the end of the income year.
This also applies to those individuals who have a regular part-time job and receive a taxable pension or government allowance.
Hence, the ATO recommends that if you have more than one employer/payer at the same time, you only claim the tax-free threshold from the payer who usually pays the highest salary or wage. The other employer(s)/payer(s) will then be required to withhold tax from your income at a higher rate (the “no tax-free threshold” rate).
Although you may be tempted to claim the tax-free threshold for both employers to have more money in your pocket and less going to the ATO, just remember the higher withholding rate reduces the likelihood of bill shock at tax time.
The only situation in which you could comfortably claim the tax-free threshold for more than one employer/payer is if you’re certain your total annual income from all your payers will be $18,200 or less.
If you decide to claim the tax-free threshold for all your payers but later realise that your total income will be above $18,200 for the year, you can provide one or more of your employers with a withholding declaration to stop claiming the tax-free threshold so you can ensure that you won’t have a large tax bill at the end of the year. Conversely, if the income from your employers/payers was originally to be more than $18,200 for the year, but a change in circumstances (whether it be your own circumstances or factors affecting your employers) meant it would be less than that.
You can complete and lodge a PAYG withholding variation application to reduce the amount of tax withheld from your payments. So you’re not disadvantaged by the current withholding rates.
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