If you’re starting a new job in Australia, one of the first things you’re asked is whether you want to claim the tax-free threshold. For many, it’s a confusing question. What exactly happens if you don’t claim the tax-free threshold? Could it affect how much tax you pay or the size of your refund? Let’s break this down so you can make the best financial decision.
Understanding the Tax-Free Threshold
In Australia, the tax-free threshold is the first $18,200 of income you can earn each financial year without paying any income tax. When you claim this threshold, your employer withholds less tax from your pay, giving you more take-home money each payday.
Here’s where it gets interesting: you can only claim the tax-free threshold from one employer at a time. If you have two jobs and claim it from both, you might end up owing money at tax time.
Quick Comparison
| Scenario | Claim Tax-Free Threshold | Don’t Claim Tax-Free Threshold |
|---|---|---|
| Pays less tax per paycheck | Yes | No |
| Risk of tax debt at EOFY | Low | None from multiple jobs |
| Likely tax refund | Smaller | Larger |
| Immediate take-home pay | Higher | Lower |
What Happens If You Don’t Claim the Tax-Free Threshold?
If you choose not to claim the tax-free threshold, your employer will withhold more tax from each paycheck. Here’s what you can expect:
1. You’ll Pay More Tax Upfront
Without claiming the threshold, you’re taxed as if you’ll earn more than $18,200 over the financial year. This means more money is deducted from your wage immediately.
Example: If you’re earning $700 a week and haven’t claimed the threshold, your employer might deduct around $100 in tax instead of $30–$40.
2. You Could Receive a Tax Refund Later
At the end of the financial year (EOFY), the ATO looks at the total tax you paid and compares it to what you actually owed. If you earned under $18,200 but didn’t claim the threshold, you likely overpaid tax and will get a refund.
It’s like giving the government an interest-free loan — not ideal, but not harmful either.
3. It Helps Prevent Tax Debts When You Have Multiple Jobs
The ATO’s tax system is designed so that people with multiple jobs don’t underpay tax. If you claim the tax-free threshold from more than one payer, you might underpay throughout the year and end up with an unexpected debt.
If one job is your main source of income, claim the threshold from that job only. For your other jobs, it’s safer not to claim it.
When Might It Make Sense Not to Claim?
Not claiming the tax-free threshold could be the right choice in certain situations:
- You have more than one employer (e.g., two part-time jobs).
- You’re only working for a short time (e.g., seasonal work).
- You’re unsure which job will be your primary source of income.
In these cases, having more tax withheld can be a better strategy to avoid future tax bills.
What the ATO Says
According to the Australian Taxation Office, everyone is entitled to claim the tax-free threshold, but only from one employer at a time. The ATO provides a simple tool and guidance to help decide whether to claim it and from which employer. For full details, visit the ATO’s official website: https://www.ato.gov.au/Individuals/Working/Working-as-an-employee/Starting-a-new-job/
Final Thoughts
While choosing not to claim the tax-free threshold might seem like a financial downside because of lower net pay, it isn’t a disaster. In most cases, it simply means you’ll have more withheld now and potentially receive a larger refund later. If you’re juggling multiple jobs or unsure about your financial situation, it’s often the safer tax option.
Still unsure? It’s always smart to check with a tax advisor or talk directly to the ATO. Getting it right from the start can save you from surprises at tax time.
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.