If you expect to earn less than $18,200 in the 2025 financial year or hold only one job, claiming the tax-free threshold in Australia can keep more of your pay in hand throughout the year. However, if you have multiple employers or exceed the threshold, you should tread carefully. You must choose only one primary source of income on which to claim. Doing so properly helps avoid unexpected tax debts when you lodge your return.
Picture this: you open your payslip in 2025, and your tax withheld makes your pay packet a lot slimmer than you anticipated. You’re left wondering, “Did I fill out the forms correctly? Should I claim the tax free threshold or not?” This seemingly simple question can cause a surprising amount of stress. The thought of paying too much tax is frustrating, and the prospect of receiving a tax bill at the end of the year is worse. The good news is that there’s a straightforward path to clarity—and this article is designed to put your mind at ease.
Below, we’ll explore the nuances of the Australian tax-free threshold, explain when it makes sense to claim it, compare different scenarios, and highlight the changes coming into effect in the 2025 financial year. We’ll also address specific dilemmas—like juggling multiple employers—so you can make the best decision for your financial situation.
Have you ever wondered why the first $18,200 of your annual income is usually considered “tax-free”? In Australia, the tax-free threshold is the amount of money you can earn each financial year without paying any income tax. If you’re an Australian resident for tax purposes, you are typically eligible to claim this threshold on your primary source of income.
• Annual threshold amount: $18,200
• Weekly equivalent: $350
• Fortnightly equivalent: $700
• Monthly equivalent: $1,517
Above these amounts, you begin to pay income tax according to the prevailing rates. For the 2025 financial year, the starting income tax percentages are expected to be slightly lower (16% instead of 19%) due to legislated tax rate reductions. Those changes might well benefit you if your liabilities are higher, but the fundamental principle remains: you can reduce how much tax is withheld at each pay cycle by correctly claiming the tax-free threshold.
If you’re entitled to claim it but forget, your employer might withhold more tax than necessary. While any extra tax withheld is eventually returned to you via a tax refund, it also means you’ll have less money in your hands week to week or month to month. Conversely, if you claim the threshold when you shouldn’t, your employer might withhold too little tax, potentially leading to an unpleasant tax bill at the end of the year.
Most Australians have just one main job or a single consistent source of income. If that sounds like you, then in the overwhelming majority of cases, you should claim the tax-free threshold. Doing so ensures the correct amount of tax is withheld, prevents nasty surprises, and helps you take full advantage of the yearly $18,200 tax exemption.
By indicating “Yes” to claiming the threshold on your Tax File Number (TFN) declaration, your employer reduces the amount of tax taken from each pay until your annual income surpasses $18,200. This provides a bit more breathing space in your budget. At the end of the financial year, if your total income remains below $18,200 (or is proportionately reduced if you worked only part of the year), you’ll usually find that no tax is payable—so you could retain more of your earnings in the first place.
The question “Should I claim tax free threshold?” gets trickier if you have more than one employer. The Australian Taxation Office (ATO) instructs that you can only claim the threshold from one payer—usually the one who pays you the most. With the second (or third) employer, you must indicate “No” to claiming the threshold, so those employers withhold tax at higher rates to compensate.
It can be tempting to claim the threshold on both jobs, hoping to keep more money in your immediate pocket. However, this can lead to under-withholding of tax. By the end of the financial year, your total combined income might exceed the $18,200 limit, creating a tax bill for the shortage.
Although the $18,200 threshold itself is expected to remain the same in 2025, the general income tax rates and thresholds beyond that first $18,200 slice of income are undergoing changes. The key points from legislation effective 1 July 2024 are:
• The 19% tax rate is reduced to 16%
• The 32.5% tax rate is reduced to 30%
• The 37% tax bracket threshold rises from $120,000 to $135,000
• The 45% top rate threshold moves from $180,000 to $190,000
If you’re near the top end of a bracket, you may feel notable “bracket creep” relief because the threshold is moving higher. Once your taxable income surpasses $18,200, the first bracket of tax will be a lower rate of 16%, slightly easing your overall tax pressure. For individuals who earn well over $18,200, the critical question remains how to manage your withholding effectively with multiple employers. However, the threshold’s existence isn’t going away—so yes, you should still consider claiming it if you’re eligible for the entire year.
Australians who become or cease to be residents during the financial year can claim a partial threshold. According to the research data, there’s a flat amount of $13,464 plus a pro-rated portion of up to $4,736, depending on how many months you’re a resident. If this applies to you, do the math carefully or seek professional advice to confirm if the partial threshold suits your situation. This approach ensures your withholding is as accurate as possible.
Even if you initially guess your income for the year but later find yourself in a different situation—taking on a second job or receiving a bonus—it’s not too late to fine-tune your tax scenario. Here’s how:
When you move to a new role or change your main job, fill out a new TFN declaration. Indicate whether or not you are claiming the threshold. For a new employer that becomes your primary source of income, you’d typically mark “Yes.”
If your circumstances are unique—perhaps you’re freelancing on the side or anticipating a large lump-sum payment—you can lodge a variation with the ATO to increase or decrease the withholding amounts. This step keeps your tax obligations aligned with your income realities.
Should you earn under $18,200 for the entire year and have no tax withheld, the ATO typically expects a Non-Lodgement Advice (NLA). This is a simple form indicating you don’t need to file a return. Failing to do so could land you on an “overdue list,” attracting attention you’d likely prefer to avoid.
Some Australians (particularly seniors and pensioners) can benefit from the Senior Australian and Pensioner Tax Offset (SAPTO). The maximum offset reduces the tax payable for low-income earners who meet specific eligibility requirements. If you qualify, the intersect between the tax-free threshold and offsets can further lower your tax liability.
By now, you’ve likely realised that “Should I claim tax free threshold?” isn’t merely a yes/no question. It depends on how many jobs you have and your total anticipated income for the year. For single-job earners expecting less than $18,200 for the financial year, the answer is almost always “Yes.” For individuals with multiple jobs, claim it with your highest-paying employer to prevent under-withholding or a nasty bill. Keep the shifting 2025 tax landscape in mind, and adjust your claims if your circumstances evolve.
If you need support or have questions, please contact us at Amplify 11.
You only need to make your choice once per employer, via the Tax File Number declaration form. If your situation changes—new job, additional income streams, or a different main source of income—you can update your TFN declaration accordingly.
You’ll likely underpay tax throughout the year, which leads to owing extra tax when you lodge your return. If you realise the mistake early, prevent an end-of-year tax bill by updating your TFN declaration so that only your main employer processes the threshold.
Yes, especially if your expected total income remains below the pro-rated threshold. You may claim up to $13,464 plus a monthly portion of $4,736. If you become or cease to be an Australian resident partway, seek professional advice to avoid over- or under-withholding.
If you receive a part-time pension or other retirement payments, you can still enjoy the threshold if you’re an Australian resident. Align your threshold claim with your highest-paying income source. The offset benefits or SAPTO thresholds may also apply, further minimising your tax liability.
If you expect a large bonus or think you’ll exceed $18,200 after initially planning otherwise, you can submit a PAYG withholding variation. This ensures employers adjust your tax withheld in real time, so you’re not left with an unwanted surprise come tax time.
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