Do you have two or more income sources?

If you do, you could fall into a possible tax trap cause by the tax-free threshold.

For Australian residents for tax purposes, the first $18,200 of your yearly income is not taxed. This is the tax-free threshold. Claiming this threshold means you reduce the amount of tax that gets withheld during the financial year.

Now, if you have more than one job, tax can get a little confusing. Problems can occur for people with two jobs even if the taxpayer and employers do the right thing as determined by at the ATO's PAYG tax scales. The problem arises because the first job attracts the tax-free threshold while the second (and subsequent thereafter) are taxed in line with the progressive tax tables produced  by the ATO.

Understanding the tax-free threshold

For example, John works one job and earns $60,000. John's employer would deduct tax and Medicare Levy to the value of $11,180. When John, lodges his tax return and claims any eligible deductions and offsets, he shoud expect a tax refund. John's friend, Sam works two jobs both paying $30,000 each. Sam's two jobs comply with the ATO's tax scales so he pays $2,756 in the first and $7,124 in the second. This amounts to $9,880, $1,300 less than the tax withheld by John's employer. If Sam is entitled to the same deductions and tax offsets as John, his tax refund will be significantly lower than John's, and he may even end up with a tax bill.

Some common questions surrounding the tax-free threshold

Why is my refund lower than last year?

If you had a second job, it is likely that you had less tax withheld by your employer, which has resulted in a smaller refund/bill payable.

This is a common scenario for taxpayers with more than one income. Even if everyone uses the ATO tax tables to properly calculate tax withheld, the total tax paid on your income may not be enough to cover the tax payable because of the progressive tax rates.

What can I do to make sure this doesn't happen to me again next year?

In the first instance, contact your payroll/HR department for one of your jobs and ask them to deduct a larger amount of tax each pay. Yes, this means you get less pay each cycle but this will sting a lot less than getting a tax bill at the end of the year.

Secondly, contact your local H&R Block office as soon as possible and we can help get your taxes in order.

Call 13 23 25 to find your nearest office and book an appointment online.