The tax-free threshold is the first slice of income you can earn each year without paying any income tax. For most Australians it's simple and automatic — but it trips people up in two situations: starting a new job, and holding more than one job at once. This guide covers both.
What the tax-free threshold is
If you're an Australian resident for tax purposes, the first $18,200 of income you earn in a financial year is free of income tax. Earn $18,200 or less across the year and you pay no income tax at all. Earn more, and only the income above $18,200 is taxed — the first $18,200 always stays tax-free. This figure has been $18,200 since the 2012–13 financial year.
How you claim it
When you start a job, you complete a Tax File Number declaration. One question on it asks: "Do you want to claim the tax-free threshold from this payer?" When you tick yes, your employer builds the threshold into the tax it withholds from each pay — so across the year, roughly the first $18,200 has no tax taken out. Most people claim it from their main job, and for anyone with a single job that's the end of the story.
The two-job trap
You can only claim the tax-free threshold from one job at a time. The standard advice is to claim it from the job that pays you the most. Your second job then has tax withheld from the very first dollar — which is why a second job so often feels like it's taxed brutally hard.
Here's the part that matters: that's about withholding, not your actual final tax. At tax time, the ATO adds all your jobs together, applies the brackets once to your total income, and works out your real tax for the year. If your employers withheld more than your true bill, you get the difference back as a refund. So a second job isn't taxed at a higher rate — the system simply front-loads the withholding, because it can't know in advance how your jobs add up.
What if you claim it twice — or not at all
If you claim the threshold from two jobs, not enough tax is withheld during the year, and you can end up with a bill when you lodge your return. If you claim it from none, too much is withheld and you get a larger refund. Neither is a disaster — your final tax is the same either way — but claiming it once, from your highest-paying job, keeps each pay closest to correct.
New residents and part-year residents
If you become an Australian resident for tax purposes partway through the year, the threshold is pro-rated — you receive a portion of the $18,200 based on the number of months you were a resident, rather than the full amount.
A quick worked example
Suppose you earn $20,000 for the year as a resident who has claimed the threshold:
Only the $1,800 above the threshold is taxed. In practice, the Low Income Tax Offset would reduce even this small amount, often to nil — but the example shows the core mechanic: the threshold comes off the bottom of your income before any tax applies.
The bottom line
The tax-free threshold lets every resident earn $18,200 a year before income tax starts. Claim it from your main job, and if you have a second job, expect more tax to be withheld there — it evens out when you lodge your return. To see exactly what you'll pay on your own income, run it through the income tax calculator.