Tax Implications of Having More Than One Job
With insecure, contract and casual work becoming increasingly common, particularly in the current COVID-19 affected economy, it’s no surprise that many young and not-so-young Australians may have income from more than one job. Where your clients are working two or more jobs casually or have overlapping contract work, they may seek your assistance in avoiding an unexpected end of financial year tax debt.
This type of debt usually arises in situations where individuals with more than one job claim the tax-free threshold in relation to multiple employers, resulting in too little tax being withheld overall. To avoid that, you need to help them look carefully at how much they will be making and adjust the PAYG withheld accordingly.
Currently, the tax-free threshold is $18,200, which means that if an employee is an Australian resident for tax purposes, the first $18,200 of their yearly income is not subject to tax. This roughly equates to $350 per week, $700 a fortnight, or $1,517 per month in pay. When an employee starts a job, their employer will give them a tax file number declaration form to complete which will allow them to claim the tax-free threshold on their job income, to reduce the amount of tax withheld from their pay during the year.
A problem arises, of course, when a person has two or more employers paying them a wage, and they claim the tax-free threshold for multiple employers/payers. The total tax withheld from their wages may then not be enough to cover their tax liability at the end of the income year. This also applies to individuals who have a regular part-time job and also receive a taxable pension or government allowance.
The ATO recommends that people who have more than one employer/payer at the same time should only claim the tax-free threshold from the payer who usually pays the highest salary or wage. The other employer/payer(s) will then be required to withhold tax from their payments at a higher rate (the “no tax-free threshold” rate).
If the total tax withheld from all an individual’s employers or payers is more than needed to meet their year-end tax liability, the withheld amounts will be credited to the individual when their income tax return is lodged, resulting in a tax refund. However, where the tax withheld does not cover the tax they need to pay, they will have a tax debt and need to make a payment to the ATO.
The only situation in which an individual could comfortably claim the tax-free threshold for more than one employer/payer is if they’re certain their total annual income from all payers will be $18,200 or less. If a person decides to claim the tax-free threshold for multiple payers but later realises that their total income will be above $18,200 for the year, they can provide one or more of their employers with a withholding declaration to stop claiming the tax-free threshold on that employer’s payments, which may help to ensure that they won’t have a large tax bill at the end of the year.
Conversely, if the income from a person’s employers/payers was originally expected be more than $18,200 for the year, but a change in circumstances (whether it be the person’s own circumstances or factors affecting their employers) means the income will in fact be less than $18,200, the employee can complete and lodge a PAYG withholding variation application to reduce the amount of tax withheld, helping to avoid them being disadvantaged by the higher withholding rates.
Important: Clients should not act solely on the basis of the material contained here. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas.