Having two jobs can be a great way to increase your income, but it can also create an unexpected tax issue if your PAYG withholding is not set up correctly. One of the most common areas of confusion is the Australian tax-free threshold: can you claim it from both jobs, and what happens if you do?
The answer depends on your circumstances, but for most people earning income from more than one employer, the tax-free threshold should generally be claimed from only one employer.
What is the tax-free threshold?
If you are an Australian resident for tax purposes, the tax-free threshold is currently $18,200. Broadly, this means you can earn up to $18,200 in an income year before income tax starts to apply. Your final tax position, however, is based on your total taxable income and your individual circumstances.
When you start a job, the information you provide to your employer determines how much PAYG tax they withhold from your wages. Claiming the tax-free threshold generally results in less tax being withheld from that employment income.
Can you claim the tax-free threshold from two jobs?
Generally, no. The Australian Taxation Office (ATO) states that if you receive income from more than one job, you should generally claim the tax-free threshold from only one employer.
If you have multiple employers, the ATO guidance is generally to claim the threshold from the employer that pays you the highest salary or wage.
Why can claiming it from two employers cause a tax bill?
Each employer calculates PAYG withholding based largely on the information available to that employer. One employer does not normally calculate withholding by combining the wages you receive from your other job.
If you claim the tax-free threshold from both employers, both payroll systems may withhold tax as though the tax-free threshold applies to the income they are paying you. When your income from both jobs is later combined in your income tax return, the total tax withheld may be less than the tax ultimately payable.
The result can be an unexpected tax bill at tax time.
A simple example
Imagine Alex has two jobs during the same financial year. Job A is Alex’s main job and Job B provides additional income on evenings or weekends. If Alex claims the tax-free threshold from both employers, each employer may withhold less tax than if the second employer had been told not to apply the threshold.
At tax time, the income from Job A and Job B is added together. The ATO then calculates Alex’s tax liability based on the combined taxable income. If the total PAYG withholding is not enough, Alex may have an amount to pay.
Important: This does not mean that everyone with two jobs will automatically receive a tax bill. The final outcome depends on total income, tax withheld, deductions, offsets, Medicare-related amounts, study or training support loan obligations and other individual circumstances.
Which job should you claim it from?
Where you have more than one employer, the ATO generally recommends claiming the tax-free threshold from the employer paying the highest salary or wage.
You would generally not claim the threshold from your other employer or employers. This allows more tax to be withheld from the additional income and can reduce the risk of an unexpected shortfall at tax time.
Is there an exception if your total income is low?
Yes. The ATO recognises that you may be able to claim the tax-free threshold from more than one payer where your total income from all sources for the income year is expected to be below the tax-free threshold.
This is why the right answer is not simply ‘never claim it twice’. Your expected total income and tax residency matter.
What if you have already claimed it from both jobs?
Do not wait until the end of the financial year if you think your withholding arrangements are incorrect. You can review your tax withholding details and, where appropriate, update the information provided to your employer.
The ATO also allows employees to request additional tax to be withheld from their pay. This can be useful where you have multiple sources of income and are concerned that the standard withholding amounts may not be enough.
Can you still get a tax bill if you only claim the threshold once?
Yes. Claiming the tax-free threshold correctly does not guarantee a refund. Your final tax position is based on your overall circumstances.
A tax bill can still arise because of factors such as:
- income from multiple employers or other sources
- investment income such as bank interest or dividends
- sole trader or side-hustle income
- study or training support loan repayment obligations
- Medicare levy or Medicare levy surcharge outcomes
- insufficient PAYG withholding during the year
Key takeaways
- Australian residents for tax purposes aregenerally entitledto the $18,200 tax-free threshold.
- If you have more than one employer, you shouldgenerally claimthe threshold from only one employer.
- The ATOgenerally recommendsclaiming it from the employer paying the highest salary or wage.
- Claiming it from multiple employers can result in too little tax being withheld and may contribute to a tax bill.
- An exception can apply where your total income from all sources is expected to remain below the tax-free threshold.
- If you are unsure whether enough tax is being withheld, review the position before the end of thefinancial year.
Need help understanding your tax position?
If you work multiple jobs or have several sources of income, it can be difficult to know whether enough tax is being withheld during the year. Elite Plus Accounting can help you review your circumstances, understand your likely tax position and identify whether your withholding arrangements may need attention.
Elite Plus Accounting
From Chaos to Clarity.
1300 744 733
www.eliteplusaccounting.com.au
Disclaimer
This article contains general information only and does not constitute taxation, financial or legal advice. Tax outcomes depend on individual circumstances. You should obtain professional advice relevant to your circumstances before acting on the information contained in this article.
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