November 17, 2021

How having multiple jobs affects your taxes

If you earn income through more than one job, a common misconception is that each employer withholds taxes from your paycheck in the same way. This is not necessarily true; they may use different tax withholding methods which could lead to an underpayment of income taxes with one employer, and overpayment with another.

The following are five things you should know about your taxes if you have more than one job, so you don’t make common mistakes at tax time.

1. What is the tax-free threshold?

The amount of tax you pay each year is dependent on your employment situation. When you start working in a second job, you may have greater tax withheld from your salary. Although this may seem daunting, it’s simply because you’re taking advantage of another employer’s tax-free threshold.

The tax-free threshold in Australia is known as the low-income tax offset (LITO). If you are claiming the tax-free threshold, this means that any income you earn up to $18,200 in each income year will not be taxed.

The tax-free threshold is equivalent to earning:

  • $350 a week
  • $700 a fortnight
  • $1,517 a month

2. How do I claim the tax-free threshold?

To claim the tax-free threshold, you must submit a Tax file number declaration to your employer. Your employer must reduce the tax that they deduct from your wages when you submit this form, meaning you’ll still receive the same amount of money. Even if you don’t want to claim the tax-free threshold, it’s important that your employer has access to this information.

3. What is a Tax file number declaration?

A Tax file number declaration is a form that you can submit to your employer to negotiate an appropriate tax rate. It’s important to have this form for both jobs, because if one of your employers deducts too much tax from your pay, you could end up paying the wrong amount of tax.

If you are newly employed, your employer will give you a Tax file number declaration to complete. If you apply for Centrelink payments, Centrelink will also give you this form to complete. If you are eligible for the tax-free threshold at your workplace, you may choose whether or not to claim it.

However, it’s important to note:

  • You shouldn’t claim the tax-free threshold for your second job if you’re still earning income from your first employment.
  • If you no longer earn money (including from paid time off), you are entitled to claim the tax-free threshold from your second job and a lower rate of tax is withheld.
  • You may ask to have one employer withhold at a higher rate to avoid a tax debt at the end of the year.

4. Why does my second employer withhold tax at a higher rate?

Whether you’re working as a contractor or supplementing your income with casual work, or any other reason you may have for having multiple jobs, your employer is required to withhold tax from each wage you receive up to the tax-free threshold.

If you have two jobs, it is preferable to take the tax-free threshold from the payer who pays you the most. Your other employers will then withhold taxes at a higher rate, known as the no tax-free threshold rate, which is likely to help you avoid owing taxes at the end of the financial year.

5. What happens to my tax at the end of the financial year?

Your tax is deducted from the total amount of money you earn each year and paid to the Australian Tax Office (ATO). In some cases, the total tax withheld from all employment sources may be greater or less than the amount required to settle your annual tax obligation. When you file your income tax return, these tax withheld amounts are credited to you.

If too much tax has been withheld, a tax refund may result. If insufficient tax was paid, the difference must be paid to the ATO so that you meet your annual requirements for h income tax.

In conclusion

Claiming the tax-free threshold is an important consideration for Australians who work more than one job. You can claim this amount from your employer by completing a Tax file number declaration form at their request or when you start working there if they don’t ask for it upfront. Regardless of how much money you’re making or what stage in life you are, it’s important to know these tax considerations to avoid overpaying or underpaying tax.

If you want to know more about what your tax obligations are, get in touch with our team today.

Filed Under: Financial Awareness, General, Tax

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