Introduction
Understanding how to claim the tax-free threshold correctly is essential for managing your income tax, reducing your tax liability, and ensuring accurate annual returns. In Australia, the tax-free threshold currently sits at $18,200—the dollar amount of income you can earn each year before any tax payable is due. Knowing when and how to adjust your tax-free threshold helps you avoid unnecessary tax bills or tax debts while maximising your take-home pay.
For Australian residents, the process is managed through your myGov account and your employer’s PAYG withholding system. Your employer uses your Tax File Number (TFN) Declaration to determine whether to apply the threshold to your wages. If you have multiple jobs, interstate wages, or other income sources such as a side gig, it’s crucial to manage your claims properly to prevent errors in your tax return.
What is the Tax-Free Threshold?
The tax-free threshold is the amount of income you can earn before personal income tax applies. For the 2024–25 financial year, the threshold amount remains $18,200. Once your income exceeds this amount, you’ll start paying tax based on Australia’s progressive tax rates.
Key Points:
- Taxable income includes wages, investment income, and other income sources.
- Your TFN Declaration form determines whether your employer applies the payroll tax-free threshold.
- Claiming the threshold with multiple employers may lead to a tax debt or higher tax payable at year-end.
- The Medicare Levy (2%) and Medicare Levy Surcharge may apply depending on your income level.
Eligibility
You can claim the tax-free threshold if you are:
- An Australian resident for tax purposes;
- Earning Australian wages under the PAYG withholding system;
- Completing a Tax File Number Declaration form with your employer.
When Should You Change or Update Your Tax-Free Threshold?
There are specific scenarios when you should update your threshold claim through your myGov account or by submitting a new withholding declaration:
- Starting a new job or changing jobs: Submit a fresh TFN Declaration form to your employer and indicate whether you’re claiming the tax-free threshold.
- Multiple jobs: Claim the threshold only with your main employer (usually your highest-paying job) to avoid overclaiming.
- Change of income or pay rise: Adjust if your fortnightly income increases significantly.
- Change in life circumstances: Marriage, divorce, or new dependents can affect your Low Income Tax Offset and overall tax rate.
Example Scenarios
- If you start a second job, do not claim the threshold with the new employer.
- If you switch to self-employment or take on contractor work, you may need to manage PAYG instalments yourself through the Australian Tax Office (ATO).
- For grouped businesses or a Designated Group Employer, ensure that your payroll tax liability is correctly reported across all entities.
Risks and Common Mistakes
Avoid these errors to prevent unexpected tax debts or incorrect withholding:
- Overclaiming: Claiming the tax-free threshold from multiple jobs inflates your threshold amount, leading to tax payable at year-end.
- Not updating your claim: Failing to update your TFN Declaration after changing jobs can result in incorrect PAYG withholding.
- Not accounting for other income: Neglecting to declare superannuation contributions, concessional contributions, or investment income may increase your taxable income.
How to Change Your Tax-Free Threshold: Step-by-Step Guide
Step-by-Step Process via myGov
| Step | Action | Platform/Location |
|---|---|---|
| 1 | Sign in to your myGov account | my.gov.au |
| 2 | Link or access the ATO online services | myGov → ATO |
| 3 | Navigate to ‘Employment’ | ATO menu |
| 4 | Select ‘New employment’ or ‘Employment details’ | As relevant |
| 5 | Update your tax and super details, including PAYG withholding options | Onscreen |
| 6 | Confirm and save your changes | Onscreen |
Using a Paper Form
If you prefer paper forms, request a Tax File Number Declaration form from your employer. Complete the withholding declaration section and submit it before your next payment summary is processed.
Understanding Related Tax Elements
Income Tax and Tax Brackets
Australia’s tax brackets determine how much tax you pay once your income surpasses the tax-free threshold. With the Stage 3 tax reforms, tax rates will simplify for many workers, reducing the marginal rate for middle-income earners.
Superannuation Contributions
- Employers must pay superannuation contributions under the Superannuation Guarantee (SG), currently at 11%.
- Concessional contributions (before-tax) are taxed at a concessional rate, while excess contributions may incur Division 293 tax.
- Keep track of your super fund and Transfer Balance Cap to ensure compliance.
Deductions and Offsets
- Eligible for the Low Income Tax Offset (LITO) if you earn below a certain threshold.
- You may also be entitled to tax deductions for certain voluntary contributions or percentage deductions for allowable expenses.
Payroll Tax Considerations for Employers
Employers across states like Victoria, New South Wales, and the Northern Territory must monitor their payroll tax-free threshold and monthly threshold for compliance.
- The Territory Revenue Office and Integrated Revenue Application portals manage reporting for grouped businesses and Group Single Lodgers.
- Employers should maintain accurate Correspondence IDs, receipt IDs, and digital portal records for self-review returns and audits.
For assistance, contact your Customer Education team or attend a payroll tax education session offered by your state revenue office.
Frequently Asked Questions
- Can I claim the tax-free threshold with more than one job?
No. You should only claim it with one employer—your main source of income—to avoid a tax debt at year-end. - What happens if I don’t update my threshold after changing jobs?
It may cause overpayment or underpayment of income tax, affecting your tax refund or creating a tax payable situation. - What if I’m an interstate or metropolitan employer?
Ensure payroll aligns with the correct threshold reduction and phase-out rate based on CPI rates (Consumer Price Index). - Can pensioners change their threshold claim?
Yes. Pensioners can manage tax on pension pay days through Pensioner Services Online or the CSC Navigator platform. - Who can help me fix my tax errors?
Contact a registered tax agent or qualified accountant, or liaise directly with the Australian Tax Office (ATO).
Managing Payments, Deductions, and Super
If you owe money to the ATO, you can create a deduction arrangement or manage your payments online. Employers may also set up voluntary deductions for debt collection or super-related contributions via Access Manager or your super account portal.
Summary & Key Takeaways
Changing or updating your tax-free threshold is essential for managing your personal income tax efficiently. Always keep your TFN Declaration up to date, review your withholding declarations, and report all sources of income accurately. Stay informed about tax laws, Stage 3 tax reforms, and superannuation changes to ensure you pay the right amount of tax.
For ongoing advice, always consult a registered tax agent or qualified accountant who can assist with your 2024–25 annual return and ensure your tax in the fund and concessional rate obligations are managed appropriately.
Disclaimer: The information provided on this blog is general in nature and does not constitute specific financial advice. It is intended for educational purposes only and should not be relied upon as a substitute for professional financial advice tailored to your individual circumstances. For personalized financial assistance, please contact Brandon Foster via the contact page.