Working two or more jobs can present difficulties in determining your tax liability. This is becoming more common with the casualisation of the workforce here in Australia and where people earn some of their living through the gig economy e.g. as Uber drivers. Overlooking this important fact can lead to nasty, unexpected tax bills at the end of the financial year. Michael Nutt, Director in our Modbury office explains some of the risks and how to manage them.
Australia is one of the highest taxing nations in the world! Beyond the first $18,200, Australians pay tax in four additional tax brackets each with their own associated rate of tax payable depending on the amount of income earned.
The table below illustrates the marginal tax rates for Australian tax residents for 2021/22 which will be used as a reference point for discussion purposes.
|Taxable Income||Tax payable on this income|
|0 – $18,200||nil|
|$18,201 – $45,000||19 cents for each $1 over $18,200|
|$45,001 – $120,000||$5,092 plus 32.5 cents for each $1 over $45,000|
|$120,001 – $180,000||$5,092 plus 32.5 cents for each $1 over $45,000|
Simply put, the Tax-Free Threshold is a provision made within the Australian tax system that allows for all Australian residents who work and/or pay tax for a full year to earn the first $18,200 of income without paying tax on it. The Low-Income Tax Offset (LITO) and the Low to Middle Income Tax Offset (LMITO) bonus temporarily increased the Tax-Free Threshold for low-income earners to $21,885 however there is no certainty the LMITO benefit is going to be around past the current 21/22 financial year.
Australian taxpayers are only entitled to claim the Tax-Free Threshold once per financial year, whether working for one employer or multiple. Your tax payable is based on your total income earned in the financial year. If you have a second job, you’re not taxed at double the rate. You’re still taxed on the total amount you have earned in the financial year ( refer to Tax table above.).
When completing employer tax declarations and withholding declaration, it’s up to you to state if you’ve previously claimed the Tax-Free Threshold with another employer in that financial year. It’s a good idea to keep track of this to avoid having to pay additional tax (due to not being taxed on your additional employment income at appropriate levels) at the end of the financial year.
If you have two say casual jobs where your earnings in total are less than $18200 you won’t pay tax on that money. However, if your overall income from two jobs places you into a higher tax bracket, you’ll be paying more tax. If your second employer also claims the tax-free threshold for you instead of withholding a higher amount of tax for you, you’ll have a short fall and will be hit with a tax bill at the end of the financial year. Far better that you DO NOT claim a Tax-Free threshold from your second employer when completing the Employer Tax Declaration Form. This will ensure that your second employer withholds and pays the correct amount of tax for you on your earnings.
What Not to Do
If you claim the tax-free threshold and earned $18200 (tax would be nil) in both jobs one and two, your combined taxable income of would be $36400 without a single dollar in tax being paid and you’d owe the tax department approximately $3822 (including Medicare levy). The more income you earn without paying tax during the year, the bigger the tax bill would be for you at year end. No one ever wants a nasty tax bill but it can be especially tough on low-income years who have not had the right amounts withheld during the year.
What To Do
In comparison if you opted not to claim the Tax-Free Threshold in your second job, (only claim on job one) you would have the appropriate tax i.e., $3822 withheld from the $18200 from job two and have this as a credit to avoid having to pay back a shortfall in income tax on your tax return come tax time. With allowable deductions you might even get a higher refund!
If you’re earning income from multiple jobs and you’re unsure of how to approach tax matters such as this, contact your Rowe Partners accountant by calling 1800 04 7693.