Australian tax-free threshold: is it worth having a second job?

Whether you want to create your own side hustle or work a part-time job on the weekends, you may be tempted to work a second job to boost your take-home pay. This may especially be the case as a new small business owner looking to stay afloat while launching your company.

If you work a second job, you’re not alone. A 2023 study from the Australian Bureau of Statistics found that 970,700 Australians had multiple jobs.

While it can be a great way to give yourself a boost in spending income, you should take a look at the ‘big picture’ before jumping into a second job. Earning more income comes with significant tax implications. Perhaps the most significant tax implication is the tax-free threshold.

In this article, we’ll explain everything you need to know about the Australian tax-free threshold including the implications of claiming the tax-free threshold for a second job so that you can decide if it is worth having a second job. If you take on a new job to boost your total income, you’ll have a better understanding of the tax liability you’ll owe at the end of the year.

What is the tax-free threshold in Australia?

The tax-free threshold is the amount of income you can earn before paying tax. It’s the figure at which you don’t owe tax to the Australian government. Claiming the tax-free threshold from your employer reduces the amount of tax withheld from your income.

The tax-free threshold in Australia is $18,200. If you’re an Australian resident taxpayer who earns less than $18,200 in an income year (or financial year), you won’t need to pay income tax for that year.

The tax-free threshold of $18,200 is equivalent to earning:

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

If you make more than $18,200 in an income year, you’re only taxed on any income over this amount according to the tax rates applicable to your tax bracket which are set by the Australian Taxation Office (ATO).

How to claim the tax-free threshold

To start this process, your employer will provide you with a tax file number (TFN) declaration form. If you utilise the Centrelink system, you can receive this TFN declaration form through it as well.

You’ll provide information to complete this form. One of the most important questions on this form is Question 8, which asks, ‘Do you want to claim the tax-free threshold from this payer?’ To claim the tax-free threshold, you’ll want to choose ‘Yes’.

Your employer will then track how much you’ve earned. Once you exceed the tax-free threshold, the employer will then begin withholding taxes on income exceeding the tax-free threshold.

Claiming the tax-free threshold if you have a second job

If you have more than one employer or payer (two or perhaps even multiple jobs) at the same time, generally, you can only claim the tax-free threshold from one employer. Usually, taxpayers claim the tax-free threshold from the employer that pays the highest salary or wage.

The tax-free threshold accounts for your combined income from all income sources, including your second job, not just what you earn from the higher-paying job. If you take on a second job and expect to earn a total income above $18,200 from all sources of income, that is both jobs, you should only claim the tax-free threshold from the higher-paying job. For clarity, you should not claim the tax-free threshold from your second employer that pays a lower salary or wage.

How does the tax-free threshold impact you if you work two jobs? 

If you decide to take on a second job, the tax-free threshold could impact you in more ways than one. The first has to do with the amount of tax that you’ll owe. The second has to do with the way employers withhold money from your wages.

Let’s take a closer look at the tax implications of having a second job and if it is worth having a second job.

Potential increase in the amount of tax that you owe

Working a second job could end up increasing the total tax you owe. However, you’ll still end up having more money in your pocket at the end of the day, but if you’re not used to having to file an income tax return , having to do so could be an adjustment and require you to find a tax agent.

Imagine that in your first job, you earn $18,000 annually. You decided to take on a second job to help boost your income. However, if you earn more than $200 in this second job, you’ll be liable to pay income tax on the combined income above $18,200 according to the ATO individual income tax rates for 2024-2025:

Using the tax brackets above, let’s look at how a second job could increase the tax you owe. Say that your first job pays $35,000 annually. You already know that you’re going to be a taxpayer at the end of the financial year. Knowing that you’ve already crossed the tax-free threshold, you take on a second job to help boost your earnings. In your second job you earn over $10,00.

However, when you do so, you end up sending yourself into a higher tax bracket because your combined total annual income now exceeds $45,000. You’ll end up having to pay a higher tax rate on the additional income. But again, because this higher rate only applies to what you earn over the $45,000, you’ll still end up taking home more money overall.

Use QuickBooks free income tax calculator to estimate your taxable income from both of your jobs.

If you’re confused about your taxable income, we recommend reading our guide to income tax and speaking with a trusted accountant who can better explain how the various tax brackets work in Australia. You can also use accounting software to track how much you earn throughout the year so that you can better estimate your year-end tax payable.

Changes to the way taxes are withheld

The tax-free threshold impacts the way taxes are withheld if you work as a sole trader in your second job or if you have 2 employers.

How taxes are withheld by sole traders

The tax-free threshold impacts the way taxes are withheld from your income if your second job is as self-employed sole trader or freelancer. If you work as a freelancer, you’re required to pay your own taxes on the income that you earn. The tax rates for sole traders are the same as individual taxpayers outlined above. This means the $18,200 tax-free threshold is available for both sole traders and individuals.

However, as a sole trader, you’re required to withhold and pay your own income taxes on income above $18,200. If working as a sole trader is your second job, you’ll probably just claim the tax-free threshold through your primary employer.

How taxes are withheld if you have two employers or a second job

If you’re employed by someone else, your employer is required to withhold tax on your behalf. But what do you do if you have two employers? Where this becomes a bit more interesting is if you’re working as an employee for two different companies. And, what do you do if you receive a government allowance or taxable pension but also work in a part-time role?

In these cases, you’re going to claim tax-free threshold rates from the employer or payer that pays the highest salary. That’s because the second employer is required to withhold tax at the ‘no tax-free threshold rate’, or higher tax rate. This serves as a tax offset and helps reduce the likelihood that you’ll incur a tax debt and owe extra tax at the end of the financial year.

Withholding tax variations

If you happen to have too much tax withheld throughout the year, you’ll receive a tax refund. One way to avoid having too much money withheld is by tracking your funds and filing a withholding declaration when you cross the tax-free threshold rate. Filing a withholding declaration authorises your payer to adjust the amount of tax withheld from your payments.

A pay-as-you-go (PAYG) system creates fewer problems down the road and attempts to reduce the amount that you’ll owe at the end of the year. If you happen to notice that employers are withholding way too much money from your paychecks, you’ll need to submit a PAYG withholding variation application. Upon doing so, the government will look at your earnings and come up with a varied withholding rate. The government will then pass this rate on to your employers who will institute the changes on your next payslip. The purpose of withholding variation is to ensure the amount you withhold during the year is as close as possible to your year-end tax liability.

Requesting a withholding review is not something that you should treat lightly. There are only certain circumstances in which you’re allowed to make such a request:

• If you’re certain of your income amounts: keeping diligent records, like payment summaries, is an excellent way to show how much you’ve earned.
• If you’re disadvantaged by the current withholding rates: you should have proof, or a strong inclination, that you’re losing money under the current rate system. You should not apply merely to see if you can secure a better tax rate.

Tips to consider when claiming the tax-free threshold

The Australian Taxation Office will look at your total taxable income for the financial year, which means the income from both of your jobs will be added together. To avoid getting a rude shock come tax time, consider these tips when claiming the tax-free threshold.

Set money aside

It’s definitely worth setting aside money regularly to cover your tax bill if you decide to get a second job. If you’re doing a side gig as a freelancer or sole trader as your second job, you can use the tax brackets to determine how much money you should be setting aside each week or month. Just remember that your tax will be calculated from your total taxable income, including both jobs.

Consider the implications of tax deductions

While you may be able to claim significant tax deductions, particularly tax deductions for sole traders, it’s best to not consider these when you’re setting aside your tax. That way, you might actually get a pleasant surprise come June 30 when your tax is calculated. You should account for your deductions at the end of the financial year (EOFY) as a potential refund, instead of relying on them when making your quarterly payments. Check our end of financial year guide to see the EOFY deadlines.

Only claim the tax-free threshold from one employer

As discussed above, if you’re an employee for both jobs, your employers should automatically withhold funds. Just remember to not tick the tax-free threshold on both jobs — only one.

Is it worth having a second job in Australia?

If you’re looking to take on a second job, it’s tempting to grasp at the highest-paying opportunity available. However, you should take the time to look at the bigger picture and consider the potential tax ramifications associated with your decision.

Be sure to consider the Australian tax-free threshold and whether the additional funds would push you over the $18,200 limit, at which point you’d need to pay taxes. While a second job will likely put you in a higher tax bracket, you’ll increase the amount of money in your pocket putting yourself in a much better position for success.

However, you’ll need to think about how to withhold your own tax as a sole trader if you exceed the tax-free threshold to ensure you remain compliant with ATO tax obligations.

Using accounting software for self-employed sole traders, freelancers and contractors like QuickBooks is a great way to ensure the income from your second job is tax ready.

Taking all of these factors into consideration will help you decide if it is worth having a second job.