The tax-free threshold and why it matters at your first job
How the $18,200 tax-free threshold works, why you should only claim it at one job, and what happens if you accidentally claim it twice.
Australia's resident income-tax scale starts with a tax-free threshold of $18,200. Below that, no income tax is owed. Above it, the marginal rates kick in.
For most school leavers and uni students, the tax-free threshold and how to claim it correctly is the single most useful tax topic.
How it works
When you start a job, your employer asks you to complete a Tax File Number Declaration form (NAT 3092). One of the questions is "Do you want to claim the tax-free threshold from this payer?" Tick yes, and the employer's payroll system applies the threshold to your pay-as-you-go (PAYG) withholding. Tick no, and the employer withholds at a higher rate that assumes you do not have a threshold available at this job.
Why you should claim it at only one job
The threshold belongs to you, not to a particular job. If you tick yes at two employers, each one will assume you have the full $18,200 untaxed. Across the year you can end up under-withheld by hundreds or thousands of dollars, and the ATO will bill you the shortfall at tax time.
Claim the threshold at the job that pays you the most. Tick no at any second job, and the higher withholding there will cover the tax you would otherwise owe on the combined income.
What if I am at uni and only earn a small amount?
If your total annual income is below $18,200, you owe no income tax. Withholding at your first job is essentially a deposit that you reclaim through your tax return. Lodge a return even though you owe nothing, so the ATO refunds the withheld amount.
Tax versus take-home pay
The tax-free threshold is just one factor in your take-home pay. The other deductions to plan for are:
- Income tax above the threshold.
- The 2% Medicare levy (above the low-income threshold of $27,222 for 2024-25).
- HECS-HELP compulsory repayments once your repayment income passes $54,435.
For the active calculation, use the HECS-HELP repayment calculator.
This is general explanatory information. For advice on your circumstances, see a registered tax agent.