Are You Missing Out on Tax Savings? Here’s What You Need to Know
When starting a new job in Australia, you’ll likely encounter a question on your Tax File Number (TFN) Declaration form: “Do you want to claim the tax-free threshold from this payer?” While it may seem like a simple yes-or-no inquiry, your answer can significantly impact how much tax is withheld from your pay and ultimately, your take-home earnings. If you’re unsure how to answer, you’re not alone.
Let’s break down what this question really means, who should claim the tax-free threshold, and what the implications are for your income and your tax return.
What Is the Tax-Free Threshold?
In Australia, the tax-free threshold refers to the amount of income you can earn before you are required to pay any income tax. As of the 2023–2024 financial year, this threshold is $18,200.
This means if you earn $18,200 or less across the financial year, you won’t pay any income tax. If you earn above that amount, you only pay tax on the income over the threshold.
Here’s a simple look at how it works:
| Annual Income | Amount Taxed | Tax Payable |
|---|---|---|
| $15,000 | $0 | $0 |
| $20,000 | $1,800 | $342 |
| $30,000 | $11,800 | $1,572 |
The tax withheld from your paycheck is an estimate based on your annual salary and whether you’ve claimed the tax-free threshold.
Should You Claim the Tax-Free Threshold?
When completing your TFN Declaration form, you must answer whether you want to claim the threshold from your current employer. The answer typically depends on your situation:
✅ Yes – Claim the tax-free threshold if:
- This is your only or main job
- You haven’t already claimed the threshold with another employer
- You expect to earn more than $18,200 this financial year
❌ No – Do not claim if:
- You’re working multiple jobs and have already claimed it with one employer
- You’re a non-resident for tax purposes
- You want to avoid owing tax at the end of the year (especially useful for second job holders)
What Happens If You Claim the Threshold More Than Once?
If you incorrectly claim the threshold with more than one employer, you risk underpaying tax throughout the year. This could result in a tax bill when you lodge your tax return.
Let’s say you work two jobs and claim the threshold on both—each employer may withhold less tax, assuming the income from your second job falls beneath the threshold. But in truth, your combined income may push you well above the threshold, leaving you with an amount owed.
To avoid this scenario, the Australian Taxation Office (ATO) recommends only claiming the tax-free threshold from your highest-paying job. This helps ensure that tax is correctly withheld across all your income sources.
For more details, refer to the official ATO page on claiming the tax-free threshold.
Changing or Updating Your Answer
What if your circumstances change during the year? You can update your TFN Declaration and change your tax-free threshold claim accordingly. For example, if one job ends and another becomes your main source of income, you should then claim the threshold on the new job.
Simply ask your new employer for a TFN Declaration form or complete the process through your MyGov account linked to the ATO.
Key Takeaways
- The first $18,200 you earn in Australia is tax-free if you claim the threshold.
- Claim the threshold from only one employer or payer, preferably your main job.
- Incorrect claims may cause tax bills at the end of the financial year.
- You can update your tax-free threshold status if your employment situation changes.
Understanding how and when to claim the tax-free threshold helps you keep more of what you earn and avoid unexpected tax surprises. Making the right choice ensures your payslip and your annual tax return align properly.
Sufiyan, a passionate IT professional and finance enthusiast dedicated to simplifying financial clarity for every Australian. With years of experience in both tech and personal finance, Sufiyan oversees all content to ensure accuracy, usability, and relevance.