Taking on a second job — whether for extra income, a career transition, or simply to make ends meet — is common. But it changes how your employer withholds tax from your pay, in a way that catches many people off guard. However, understanding the mechanics upfront helps you avoid an unexpected bill when you eventually lodge your return.
Every Australian resident is entitled to a tax-free threshold on their income. However, you can only claim it from one employer at a time. Consequently, if you claim it from both jobs, your employers won’t withhold enough tax overall. This typically results in owing money at tax time, rather than a genuine tax-free benefit.
Generally, claim the tax-free threshold with whichever employer pays you the higher income. Don’t claim it with the second employer. Therefore, the ATO taxes the second job’s income from the first dollar you earn, at a higher withholding rate. This rate is designed to more accurately reflect your combined income across both roles.
Even when you correctly claim the tax-free threshold at only one job, the withholding rates are based on standard assumptions. They don’t perfectly account for your exact combined income. Consequently, it’s common to still owe a small amount, or occasionally receive a small refund, once the ATO reconciles your actual combined income at tax time.
When you lodge your tax return, the ATO combines all income from both jobs. It taxes this according to the marginal tax brackets that apply to your total income for the year. Therefore, your final tax liability depends on your combined earnings, regardless of how much tax each individual employer withheld throughout the year.
Claiming the tax-free threshold at both jobs. This is the most common mistake and the most likely cause of an unexpected tax bill.
Not declaring all income. Both employers report your income directly to the ATO. So forgetting to include income from either job when lodging doesn’t go unnoticed.
Underestimating your total tax bracket. Combined income from two jobs can push you into a higher tax bracket than either job alone would suggest. This is easy to overlook when you think about each job separately.
Not planning for a potential tax bill. If you know your combined income will result in extra tax owing, setting aside a portion of income throughout the year avoids a difficult surprise.
You can still claim work-related deductions from either job in your tax return, provided they meet the usual requirements and you document them properly. Consequently, keep records for both roles, not just your primary job, so you don’t miss anything.
A little planning makes working multiple jobs financially manageable, rather than a source of tax-time stress. This means correctly managing the tax-free threshold, understanding your likely combined tax position, and keeping records for both roles.
EBATS helps people working multiple jobs understand their combined tax position, avoid common withholding mistakes, and plan ahead for what they might owe.
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