Tax Free Threshold with Two Jobs

Knotty2030 on 18/06/2022 - 14:29

Hey all,

I have a question about the tax free threshold.

I have a full time job that pays $115,000.

I am picking up some casual work that will pay me a few thousand dollars over the next sixth months, with the possibility of more work in the future.

I have been given 3 different versions of advice on the tax free threshold.

From what I understand, I should not apply for the tax free threshold for this new casual job. As a result, I have clicked ‘No’ to this on the form I completed for the job.

My question is around my full time job and the tax free threshold. The accounts person at my work said I should not apply for the tax free threshold for my full time job or the casual job. Whereas, my friend who is also has a similar accounts role said I should.

I just need someone to clear this up for me and explain it to me like I’m simple. Happy to read more than one explanation so it makes full sense to me.

Thanks in advance!

Financial Taxation

Comments

  • kipps on 18/06/2022 - 14:32
    +17

    Claim tax free threshold on one job, the one you’re making the most money on. that’ll reduce the amount of withholding they take out of your pay, so more money.

    Don’t claim tax free threshold on other jobs otherwise you’ll be overpaid and your notice of assessment is likely to have you paying money back.

    • HeWhoKnows on 19/06/2022 - 17:23
      +1

      100% correct

      • Knotty2030 on 19/06/2022 - 23:07

        Thank you. Appreciate your comments. I’ll do this.

  • Christown on 18/06/2022 - 14:32
    +5

    You want to be claiming the tax free threshold only for the job you earn the most money for. In this case for your full-time job paying $115,000 you would claim it.

    Working more than job and not claiming the tax free threshold for the secondary jobs can still result in a tax debt come tax time, but this is better than screwing yourself out of a lot of money from your main income all year by them withholding too much.

    • HeWhoKnows on 19/06/2022 - 17:24
      +1

      This is true as well
      But to comply with the law OP just needs to say NO to the seond job.

  • cookie2 on 18/06/2022 - 14:32
    +2

    I was under the impression that selecting no to claiming the tax free threshold on the second job, was more about not being caught out if your total years income goes into a higher tax bracket etc. So essentially selecting yes for both means that you might have a suprise come tax time as may need to pay some back to the ATO. But that you won't be worse off.

    • SBOB on 18/06/2022 - 14:36
      +3

      was more about not being caught out if your total years income goes into a higher tax bracket

      It's not about bracket, but about not taxing the first $18.2k..so for the second job, they wouldn't be earning that and therefore not paying tax.

      I don't think there is a legal reason you can't tick it for both, as long as you're dusciplined and you put the additional tax $ aside for tax return time

      Your end tax liability for the year, for your combined income, is the same regardless

      • cookie2 on 19/06/2022 - 00:15

        Thanks for clarifying. I hadn't considered the initial $18k.

    • HeWhoKnows on 19/06/2022 - 17:25

      It just means that the amount of PAYG income tax dedudcted is more correct.
      Its also illegal to claim the threshoold twice!

  • Amaris on 18/06/2022 - 14:34
    +3

    The tax free threshold should apply to one job. If this is not applied the tax withheld with be higher, especially since your salary from the full time job is high. If you apply it for both you would be paying less tax than you should and will have to pay it back at tax return time.
    However, whatever you do the amount taxed at the end will be the same as you would know.

  • JimmyF on 18/06/2022 - 14:41
    +8

    I just need someone to clear this up for me and explain it to me like I’m simple. Happy to read more than one explanation so it makes full sense to me.

    When it comes to tax time, the first $18,200 of what you earn isn't taxed. You get this 'tax free'. You then start to pay tax from there.

    If you claim the tax free threshold (TFT) on both jobs, they both assume you get the first ~$18k earned via them tax free and will tax you accordingly.

    Come tax time, the tax man doesn't see it like that. Its income from job A + job B = your taxable income, and you only get the first $18k of that tax free.

    So if you had two jobs earning say $30k each, both with the TFT being claimed, you would only be paying tax on income of about $12k per job or $24k all up, but come tax time, you will need to pay tax on about $42k instead. So you end up with a massive tax bill as you under paid tax during the year.

    In your case being such a low amount on the 2nd job it isn't going to cause you a huge issue, just be prepared you might have to pay a little tax on it. Between 32-37c in the dollar, depending on how close to the $120k figure your first job puts you.

    Regardless of what you pick, it will be balanced up at tax time. I know someone that doesn't claim TFT on their primary job so they get a 'refund' every year at tax time as a bonus.

    • Quantumcat on 18/06/2022 - 20:35
      +4

      Best explanation well done

  • andrek on 18/06/2022 - 15:04
    +3

    The accounts person at my work said I should not apply for the tax free threshold for my full time job or the casual job.

    They should go back to school.

  • jizmo on 18/06/2022 - 15:12
    +5

    If your smart and can make the money work for you tick yes to both then cash in when you lodge and have to pay the excess.
    If you're hopeless with money you'll end up with a bill with maybe around 12% compound interest on top.

    • Amaris on 18/06/2022 - 15:21
      +2

      Why compound interest?

    • Christown on 18/06/2022 - 17:57
      +3

      You won't get charged interest if you pay off your tax debt before it's due.

      • jizmo on 18/06/2022 - 20:06
        +1

        Yeah but if he's blown it all on crap.

  • Knotty2030 on 18/06/2022 - 15:17
    +2

    Thanks all. This is really helpful.

    I appreciate knowing that it is the same amount tax paid over the year. But more about when you pay it (each pay or EOFY).

    So essentially, the most straight forward way for me to do this is to apply the tax free threshold to my main job? (Sorry @jizmo I know this isn’t very savvy).

    I prefer getting a refund at the EOFY. It’s much simpler from my end. Could I be in for owing money rather than getting a refund? My impression is I would possibly get quite a small refund rather than when I had 1 job but avoid the issue of having to pay?

    Again, I know my questions are simple and I apologise for that.

    • foxmulder on 18/06/2022 - 15:45
      +3

      If you do yes for the tax free threshold for first job and no for the second job, you will be most likely get tax refund. If you say yes to both jobs, you are most likely will owe money.

      • tonka on 18/06/2022 - 17:50

        At $115K on the first job I think will still be up for a tax bill. The 'no threshold rate' starts at around 20% but the OP's margin rate would be 34.5% pushing 39%.

    • jizmo on 18/06/2022 - 20:26
      +1

      You have to remember that the second job should be paying tax at beyond 115K rate. They wont I doubt they'll be taxing you after the 20K tax free at the lowest rate. When you should be probably 3 scales above that.

      Taxable income

      Tax 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

      $29,467 plus 37 cents for each $1 over $120,000

      $180,001 and over

      $51,667 plus 45 cents for each $1 over $180,000

      The above rates do not include the Medicare levy of 2%.

    • Quantumcat on 18/06/2022 - 20:40
      +1

      Could I be in for owing money rather than getting a refund?

      Yes, because in the second job they'll be taking an amount of tax out that assumes that's all you earn, therefore at a lower rate.

      However do you ever get bonuses from your main job? You might notice that they take extra tax out of those pay slips - because it assumes that's your normal wage and if you earned that every month over the whole year you'd have to pay a higher percentage tax. So you end up getting the extra back when you submit your return (cause then they know what you did actually earn through the year).

      If you have a few of these bonuses, plus you can find a few deductions, you should be able to get rid of the small amount owed due to the incorrect tax being withheld from the second job and not end up owing anything or even getting a small tax return.

    • andrek on 19/06/2022 - 08:37

      If you want a tax refund - answer no in both declarations. Then both employers will be withholding more and you'll end up with a tax refund at the end of the year.

  • tio on 18/06/2022 - 15:46
    +4

    I would apply for tax free threshold for both jobs, less tax withheld through out the year, then you pay the short fall after lodging your tax return. Doing that you'll have more cash available through the year to do other things before return it back to the ATO.

    • djkelly69 on 18/06/2022 - 22:13

      I would not recommend making a false declaration to your new employer / the ATO (ie. that you are entitled to claim to tax free threshold from that employer).

      • 82norm on 19/06/2022 - 08:17
        +1

        It’s not a declaration, it’s just asking if you wish to claim the tax free threshold.

        • djkelly69 on 19/06/2022 - 09:36

          It is literally called a TFN declaration.

          • tio on 19/06/2022 - 19:02

            @djkelly69: just because you declare your TFN is such and such, doesn't make everything on the form a "declaration". According to the wording of the question and guide:

            Do you want to claim the tax-free threshold from this payer?
            Only claim the tax‑free threshold from one payer at a time, unless your total income from all sources for the financial year will be less than the tax‑free threshold.

            There's nothing saying you can't claim tax free threshold from more than one payer, and there's also nothing says what penalty there will be if you do.

            • djkelly69 on 19/06/2022 - 20:07

              @tio:

              DECLARATION by payer: I declare that the information I have given is true and correct.

              There are penalties for deliberately making a false or misleading statement.

              People can do what they like, I am just pointing out that it is a formal declaration.

    • Yola on 19/06/2022 - 18:43

      If you do this you may have to Pay As You Go (PAYG) tax in advance for the next year.

  • tonka on 18/06/2022 - 17:54
    +1

    OP even if you don't claim the tax free threshold on the second job, you still won't be paying enough tax.
    You should budget for 34.5% tax on the income from the second job and 39% if either of the jobs push you over $120K. You are gonna need some decent tax deductions to make it worthwhile, or ask for all the income from the second job to be sacrificed to superannuation so tax isn't an issue.

    • tonka on 18/06/2022 - 22:14

      That should read 'do claim' not 'don't claim' .

  • Cheapskate Paul on 19/06/2022 - 00:26
    +2

    You can also ask the second employer to tax you at a higher rate of your choice, to ensure that you don't get a tax bill. Even though you won't claim the tax free threshold, you will only have tax deducted at the 19% rate for the first $26,800 of income from your second employer, but you will actually have to pay 39% on any income that takes you over $120,000 of taxable income for the year. If it was me, I'd ask the second employer to tax me at the 39% rate to make sure I didn't get a tax bill.

    • Knotty2030 on 19/06/2022 - 08:49

      Thanks Cheapskate Paul. So, in other words, don’t claim the tax free threshold from anyone. Then just go to my second employer and ask them to tax at 39% and that’s it?

      • Cheapskate Paul on 19/06/2022 - 18:57
        +2

        No, I'd claim the the tax free threshold from the main employer.

        • Knotty2030 on 19/06/2022 - 23:07

          Thank you. I’ll do that.

    • SBOB on 19/06/2022 - 09:07
      +1

      make sure I didn't get a tax bill

      I'd prefer the interest free loan from the government, have the money available in my savings account/investment/offset etc throughout the year, and then pay them the required tax come eofy (plus several months you get to lodge and lay tax liabilities)

      Not a chance I would ever ask an employee to tax me more, unless you're the kind of person with literally zero financial control and just spend everything in your account.

      • Knotty2030 on 19/06/2022 - 09:49

        I have plenty of control. I’m probably just quite conservative with money and don’t like surprises. I guess in this case, I am familiar with the idea of tax refunds (as I don’t own a business) so I’m trying to keep straightforward for myself. But I do appreciate the idea of having money sitting in my offset. I’m happy to hear your suggestion. I assume you’re saying you’d utilise the tax free threshold?

  • JIMB0 on 19/06/2022 - 21:18
    +3

    If you end up owing the ato money a few years in a row they'll put you on an installment plan where you have to prepay the shortfall every quarter. This amount is calculated before deductions so can be a lot of money tied up.

    • Quantumcat on 20/06/2022 - 00:00

      Makes sense for them to do that otherwise everyone who is a bit savvy and has the willpower to not spend everything that passes through their account would be saving money on interest or earning money on investments through the whole year and only paying their tax bill when they were forced to.

      Do you think they would do the same if you put in your TFN declaration that you don't have HECS (with the intention of paying what you owe for the year in a lump sum before indexation)? Have been thinking about doing that. But if I had to start prepaying like you're suggesting then not worth trying.

      • tonka on 20/06/2022 - 00:34
        +1

        ATO is getting a lot more details about pays as STP phase 2 comes online. Hard to know what they will do with that info. Previously the additional amounts deducted for HECS was just reported as part of your tax so you would have more there as a provision when they calculate your HECS repayment at tax time (not sure if that's changing). But HECS collected for the year is inaccurate anyway, because as you cross different thresholds it changes the rate across your whole income. So you could be paying no HECS or a lower rate and then get a bonus or commission or pay increase in one pay week that changes the rate you should be paying across all your whole income. A lot of people end up with HECS deductions that are too low or NIL when they do their return. If you don't declare HECS liability, then around end of May see what your earnings are you could then calc the percentage and pay extra tax in June to cover it, I reckon worst case your employer may get a letter asking them to change it, but that's not a current thing..

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