Disclaimer: This guide contains tax information current as of February 2026 for the 2024-25 and subsequent income years. Tax rates, thresholds, and HELP repayment amounts are subject to change through legislation. Individual circumstances vary significantly. We recommend consulting with a registered tax agent for advice specific to your situation. This guide covers general principles only and should not be relied upon as tax advice.
The tax-free threshold is one of the most important concepts in the Australian tax system, yet many employees don't fully understand when to claim it or what happens if they get it wrong. The $18,200 tax-free threshold means most Australians don't pay income tax on the first $18,200 they earn each year, significantly reducing tax liability for low and middle-income earners.
When you start a new job, your employer will ask you to complete a Tax File Number (TFN) declaration form where you indicate whether you want to claim the tax-free threshold from that employer. Your answer determines how much tax your employer withholds from your pay throughout the year, affecting your take-home pay and whether you receive a refund or owe money when lodging your tax return.
Getting this decision wrong can result in substantial underwithholding that creates an unexpected tax debt at the end of the financial year, or overwithholding that gives the ATO an interest-free loan of your money while you struggle with lower take-home pay. This guide explains what the tax-free threshold means, when you should claim it, and how to complete your TFN declaration correctly.
The tax-free threshold means the first $18,200 of taxable income you earn in a financial year (1 July to 30 June) is taxed at 0%. You pay no income tax on this amount.
These progressive tax rates mean you only pay higher rates on income above each threshold. If you earn $50,000, you don't pay 30% on the entire $50,000. Instead, you pay 0% on the first $18,200, then 16% on the next $26,800 (from $18,201 to $45,000), then 30% on the remaining $5,000 (from $45,001 to $50,000). This progressive structure means most of your income is taxed at lower rates than your top marginal rate.
Most Australian taxpayers also pay a Medicare levy of 2% on their taxable income, with low-income thresholds providing reductions or exemptions. The Medicare levy applies in addition to income tax rates, meaning someone in the 30% tax bracket actually pays 32% tax when including Medicare levy. However, foreign residents and some temporary visa holders may be exempt from Medicare levy under certain circumstances.
When your employer processes your pay, they use ATO tax tables to determine how much tax to withhold based on your earnings and whether you've claimed the tax-free threshold. Pay As You Go (PAYG) withholding means your employer withholds tax from each pay and remits it to the ATO on your behalf. These withholdings should approximately match your final tax liability for the year, so when you lodge your tax return, the amount already withheld covers most or all of your tax debt.
The tax-free threshold applies annually, not per job. If you work for multiple employers simultaneously or change jobs during the year, you still only have one $18,200 tax-free threshold for the entire financial year across all employment income.
When you claim the tax-free threshold, your employer applies tax withholding rates that account for the $18,200 tax-free amount across the year. In practical terms, this means certain amounts of each pay period are withheld at 0% tax.
For employees claiming the tax-free threshold, approximate tax-free amounts per pay period are around $350 per week, $700 per fortnight, or $1,517 per month. These figures are approximations based on annual threshold divided by pay periods. Actual ATO tax tables use precise withholding calculations based on annual income projections, so payroll systems calculate withholding using the official tables rather than simple division.
If you earn exactly the tax-free threshold equivalent each pay period and claim the threshold, your employer won't withhold any tax from your pay. If you earn more than the tax-free equivalent in each period, tax withholding applies to the excess amount at the appropriate progressive rate.
For example, if you earn $800 per week and claim the tax-free threshold, your employer withholds tax on approximately $450 per week (the amount above the $350 weekly tax-free equivalent), typically at the 16% rate plus Medicare levy, resulting in roughly $81 withheld weekly. If you earn $2,000 per week, the withholding calculation accounts for the tax-free portion plus progressive rates on higher amounts, resulting in more substantial withholding that reflects your projected annual tax liability.
If you don't claim the tax-free threshold, your employer withholds tax from the first dollar of your earnings at approximately 30% (including Medicare levy) on amounts up to certain thresholds. This overwithholding ensures the ATO receives tax from employees with multiple jobs, as discussed below.
The purpose of PAYG withholding is to collect tax gradually throughout the year rather than requiring a large lump sum payment when lodging your return. Proper withholding means your tax return results in a small refund or small payment, not large amounts either way.
The tax-free threshold is available to Australian residents for tax purposes. Tax residency is determined by the ATO's residency tests, which consider domicile, permanent place of abode, and the 183-day test. Most Australian citizens and permanent residents living in Australia are automatically residents for tax purposes, though there are exceptions for people living overseas or in unusual circumstances.
Foreign residents for tax purposes cannot claim the tax-free threshold. Foreign residents pay tax from the first dollar of Australian-sourced income at different rates than residents.
Foreign residents do not pay Medicare levy unless they are covered by reciprocal health care agreements that make them liable.
Working holiday makers on certain visa subclasses pay special tax rates. Working holiday maker rates are 15% on income up to $45,000, then ordinary resident rates apply above this threshold. Working holiday makers cannot claim the tax-free threshold for the first $45,000, but the reduced 15% rate partially compensates.
Temporary residents with certain visa types may have different tax treatment depending on their specific circumstances. Tax residency is complex for temporary visa holders, and individual assessment is often required to determine correct treatment.
Most employees are straightforward residents who can claim the tax-free threshold, but if you're unsure about your residency status, the ATO provides online tools and guidance to help determine your classification, or you can consult a registered tax agent for assessment.
If you have only one job or income source during the financial year, you should claim the tax-free threshold from that employer. This is the standard situation for most Australian employees who work for one employer at a time.
Claiming the threshold in a single job scenario means your employer withholds the correct amount of tax from your pay throughout the year. Your take-home pay is higher than if you didn't claim the threshold, and when you lodge your tax return, the withholding should closely match your actual tax liability, resulting in a small refund or small amount owing.
For example, if you earn $60,000 annually from a single employer and claim the tax-free threshold, your employer withholds approximately $10,200 in tax across the year. This accounts for $0 tax on the first $18,200, 16% on the next $26,800 (approximately $4,288), and 30% on the remaining $15,000 (approximately $4,500), plus Medicare levy of approximately 2% on the full amount. When you lodge your tax return, the $10,200 withheld covers your liability, and you receive a small refund or owe a small amount depending on deductions and other factors.
If you earn below $18,200 annually from your single job, claiming the tax-free threshold means no tax is withheld from your pay, and you don't owe any tax when lodging your return (though Medicare levy may apply depending on income level and low-income thresholds).
Changing jobs during the year doesn't change this principle. If you work for Employer A from July to December, then resign and work for Employer B from January to June, you should claim the tax-free threshold from both employers as long as you're only working for one at any given time. When you lodge your tax return, the ATO combines your income from both employers and calculates tax on your total annual income, giving you credit for all tax withheld by both employers.
The single job scenario is straightforward: claim the tax-free threshold to ensure correct withholding throughout the year.
If you work for multiple employers simultaneously, you should only claim the tax-free threshold from one employer - specifically, your highest-paying job. All other employers should have you marked as not claiming the threshold.
The reason is simple: you only have one $18,200 tax-free threshold per year, not one per job. If you claim the threshold from multiple employers, each employer withholds tax as if you have a separate tax-free threshold, resulting in underwithholding across your combined income. When you lodge your tax return, the ATO calculates tax on your total income, and the amount withheld doesn't cover your actual liability, creating a tax debt.
Suppose you work two jobs simultaneously:
Correct approach (claim threshold only from Job A):
Incorrect approach (claiming threshold from both jobs):
This unexpected debt creates significant financial stress for many taxpayers who didn't understand the withholding implications.
The multiple jobs scenario is where most tax-free threshold errors occur. People start a second job, complete the TFN declaration claiming the threshold without understanding they should only claim it from one job, and face substantial tax debts at the end of the year.
Always claim the tax-free threshold from your highest-paying job and decline the threshold from all other concurrent employers to ensure adequate withholding across your combined income.
The tax-free threshold applies to your total taxable income from all sources, not just employment. If you have income from sole trader business activities, rental properties, investment dividends, or other sources in addition to employment income, consider whether claiming the tax-free threshold from your employer results in adequate total withholding across all income.
Sole traders and self-employed individuals don't have employers withholding tax from their income. Instead, they typically pay quarterly PAYG instalments based on the ATO's estimate of their annual tax liability. If you're both an employee and a sole trader, your employee tax withholding should account for your employment income only. Your PAYG instalments cover tax on your business income. The tax-free threshold applies to your combined income when you lodge your return, but for withholding purposes during the year, the threshold is usually applied to your employment income.
However, if your business income is substantial and your employment income is your secondary income source, you might choose not to claim the tax-free threshold from your employer to increase withholding and avoid a large tax debt when lodging your return. This is a strategic decision based on your specific income mix and cash flow preferences.
Government pensions and payments have tax withheld if you request it. Pensioners receiving Age Pension or other taxable government payments can choose whether to have tax withheld. If the pension is your only income and it's below the tax-free threshold, you wouldn't owe tax regardless of whether you have withholding. If you have other income in addition to a taxable pension, consider whether you need withholding from the pension to avoid a tax debt on your combined income.
Investment income from dividends usually has franking credits attached, which are credits for company tax already paid. These franking credits offset your personal tax liability. When calculating whether you'll owe tax, consider both your income and any franking credits you'll receive. Some investors with substantial franked dividend income receive tax refunds even with relatively high gross income because franking credits exceed their personal tax liability.
The key principle is that the tax-free threshold applies once per year across all your income sources. PAYG withholding from employment is just one mechanism for collecting tax during the year. When you lodge your tax return, the ATO combines all your income, applies the tax-free threshold and progressive rates to your total, and gives you credit for all withholding and franking credits, then determines whether you receive a refund or owe additional tax.
When you start new employment, your employer must request that you complete a Tax file number declaration form (NAT 3092). This form can be completed on paper or electronically through the employer's payroll system. The declaration tells your employer your TFN, whether to claim the tax-free threshold, and whether you have HELP debts or other relevant circumstances affecting withholding.
Section A - Tax File NumberProviding your TFN is not mandatory, but if you don't provide it, your employer must withhold tax at the highest marginal rate (currently 47% including Medicare levy) from the first dollar of your earnings. This creates substantial overwithholding, so it's in your interest to provide your TFN.
Section B - Personal DetailsInclude your name, address, and date of birth. Ensure these match your TFN records with the ATO to avoid processing issues.
Section C - Tax-Free Threshold ClaimThis is where you indicate whether you want to claim the tax-free threshold from this employer. The form asks "Do you want to claim the tax-free threshold from this payer?"
Section D - Study and Training Support LoansIndicate if you have a Higher Education Loan Program (HELP) debt, VET Student Loan (VSL) debt, Financial Supplement (FS) debt, or Student Start-up Loan (SSL) debt. If you have any of these debts, you must indicate this so your employer applies additional withholding to cover your compulsory repayment obligation.
HELP repayments are calculated as a percentage of your total income once you exceed the minimum repayment threshold. For the 2025-26 income year, the minimum threshold where 1% repayment begins is approximately $54,435 (this threshold is indexed annually, so verify the current figure on the ATO website). If you earn above the threshold and have a HELP debt, you're required to make compulsory repayments calculated as a percentage of your income. The repayment percentage starts at 1% for income just over the threshold and increases progressively to 10% for very high incomes.
If you don't indicate you have a HELP debt on your TFN declaration, your employer won't withhold the additional amount required for repayments. When you lodge your tax return, the ATO calculates your HELP repayment obligation and adds it to your tax debt, potentially creating a substantial amount owing that you didn't anticipate.
Other sectionsThe remaining sections cover less common situations including whether you're a foreign resident for tax purposes, whether you're claiming a tax offset (seniors and pensioners tax offset or zone tax offset), and whether you're claiming an exemption from the Medicare levy.
Employers cannot commence paying you until they've requested your TFN declaration, though employment can commence before you complete the form. The ATO requires employers to request the declaration before or as soon as practicable after commencement, not as a precondition to starting work. If you don't complete the declaration, your employer must withhold at the maximum rate until you do.
Once completed, employers must submit the TFN declaration to the ATO electronically. They must retain the original declaration for the duration of your employment and for five years after your employment ends. You should keep a copy for your own records as well.
You can change your TFN declaration at any time by completing a new form and submitting it to your employer. Common reasons for changes include starting or ceasing a second job (requiring you to change which employer you claim the threshold from), realising you've incorrectly claimed or not claimed the threshold, or changes to your HELP debt status.
If you start a second job mid-year, you need to decide which job should have the tax-free threshold applied. Generally, your highest-paying job should claim the threshold. If your new second job pays more than your original job, you should submit a new TFN declaration to your original employer removing the tax-free threshold claim, and claim it from your new higher-paying employer instead.
If you discover you're claiming the tax-free threshold from multiple employers, fix this immediately by submitting new declarations removing the threshold from all but your highest-paying job. The sooner you fix the error, the less underwithholding accumulates. Your employers will adjust withholding from the next pay period after receiving your updated declaration.
Changes to declarations affect future pays only, not past pays. If you've been underwithholding for several months before correcting your declaration, the insufficient withholding from previous months remains insufficient. When you lodge your tax return, you'll owe tax on that period's underwithholding. Correcting your declaration prevents the problem from worsening but doesn't fix past underwithholding.
Some employees proactively request additional tax withholding to avoid tax debts. You can ask your employer to withhold more tax than the standard tables require by completing a Withholding declaration (NAT 3093). This is useful if you have income from sources that don't have withholding (like rental property or side business income) and you want to increase withholding from your employment to cover the tax on that other income.
Your annual tax return is where the ATO reconciles your actual tax liability for the year against all withholding that occurred. The ATO compares your total income from all sources against your total withholding from all employers, franking credits, and other tax offsets to determine whether you receive a refund or owe additional tax.
If you claimed the tax-free threshold correctly and had appropriate withholding throughout the year, your tax return typically results in a small refund or small amount owing. Most Australians receive refunds because employers withhold conservatively to avoid under-withholding.
If you incorrectly claimed the tax-free threshold from multiple jobs, your tax return will show that total withholding is substantially less than your actual tax liability, creating a tax debt. The ATO will issue a notice of assessment showing the amount you owe, which must be paid by the specified due date to avoid general interest charge (GIC). The GIC is set quarterly by the ATO and based on the 90-day bank bill rate plus an uplift factor, typically resulting in effective rates that exceed commercial interest rates.
If you didn't claim the tax-free threshold when you should have (single job scenario), you'll receive a larger refund. While this seems beneficial, you've essentially provided the ATO an interest-free loan throughout the year by having excessive withholding. You would have been better off with correct withholding and higher take-home pay during the year.
You can correct mistakes by lodging an amendment to your tax return if you discover errors after lodging. The ATO allows amendments to be made, though you may incur interest charges or penalties depending on the nature and timing of the correction. If you realise you made withholding errors during the year, lodge your return accurately reflecting your actual income and withholding, and pay any resulting tax debt. Don't attempt to manipulate your return to hide underwithholding issues.
If you owe tax when lodging your return and cannot pay the full amount immediately, contact the ATO to arrange a payment plan. The ATO is generally accommodating for taxpayers who engage proactively and make genuine efforts to pay their debts. Ignoring tax debts or failing to lodge returns creates substantially worse outcomes including escalating penalties, debt collection action, and director penalty notices for company directors.
Several specific situations require particular attention to tax-free threshold considerations.
Part-year residents who become or cease to be Australian tax residents part-way through a financial year may be entitled to a pro-rata tax-free threshold. The calculation depends on the specific period of residency and can be complex. If you arrived in Australia or departed permanently during the year, consult a tax agent for correct treatment.
Seasonal workers who work intensively for part of the year then have periods without work should claim the tax-free threshold from their employer. The withholding will be based on your pay rate as if you worked all year, but when you lodge your return reflecting your actual lower annual income, you typically receive a refund.
Multiple short-term jobs create complexity if you change employers frequently throughout the year. You should claim the tax-free threshold from each employer as long as you're only working for one at any given time, even if you have many different employers across the year. Your tax return reconciles all the separate employment periods.
Young people and students in their first jobs often claim the threshold appropriately from their single casual job, even if they only work limited hours. If your annual income is below $18,200, you won't owe tax even with the threshold claimed, and you'll receive a refund of any tax withheld. However, if you have multiple casual jobs simultaneously, the multiple jobs rules apply even for low-income earners.
Retirees receiving income from superannuation pensions generally don't have tax withheld unless they request it, as super pensions are often tax-free for retirees over 60. However, retirees with employment income or taxable super pensions need to consider whether the tax-free threshold applies to their employment income or should be allocated elsewhere depending on their total income mix.
What happens if I claim the tax-free threshold from two jobs accidentally?
You'll have insufficient tax withheld during the year, and when you lodge your tax return, you'll owe the ATO for the underwitheld amount. Fix the error immediately by submitting a new TFN declaration to one employer removing the threshold claim. This prevents further underwithholding but doesn't fix past months. You'll need to pay the tax debt when lodging your return.
Can I claim the tax-free threshold if I work for two employers but at different times of the year?
Yes. If you only ever work for one employer at a time (even if you change employers multiple times during the year), you should claim the tax-free threshold from each employer. When you lodge your tax return, the ATO combines your income from all employers across the year and applies the single $18,200 threshold to your total income.
I earn $15,000 per year from a casual job. Should I claim the tax-free threshold?
Yes. If this is your only income, claiming the threshold means little or no tax is withheld from your pay since your annual income is below $18,200. If your employer withholds any tax, you'll receive it back as a refund when lodging your return. Not claiming the threshold would result in excessive withholding throughout the year even though you don't ultimately owe tax.
Does the tax-free threshold apply to investment income like share dividends?
The $18,200 tax-free threshold applies to your total taxable income from all sources, including dividends. However, dividends don't have PAYG withholding unless they're unfranked foreign dividends. When you lodge your tax return, the first $18,200 of your combined income (employment plus dividends plus other income) is taxed at 0%.
I have a HELP debt. Does this affect whether I claim the tax-free threshold?
No, the HELP debt doesn't affect whether you should claim the tax-free threshold. It affects how much tax is withheld. If you have a HELP debt and earn above the repayment threshold, your employer withholds extra amounts to cover your compulsory repayment. You should still claim the tax-free threshold from your main job (or your only job) and indicate on your TFN declaration that you have a HELP debt.
Can I tell my employer to withhold more tax than required?
Yes. You can complete a Withholding declaration (NAT 3093) requesting your employer withhold additional amounts from each pay. This is useful if you want to avoid a tax debt from other income sources or if you prefer to receive a larger refund rather than having higher take-home pay during the year.
What if I'm not sure whether I'm an Australian resident for tax purposes?
The ATO provides a residency determination tool on their website that helps determine your tax residency status based on your circumstances. If your situation is complex (recent arrival, working temporarily overseas, etc.), consult a registered tax agent for assessment. Getting this wrong affects your entire tax position, so it's worth professional advice if you're unsure.
How do I fix incorrect withholding from previous years?
You can amend previously lodged tax returns if you discover errors. Lodge an amendment through myTax or your registered tax agent. The ATO will reassess your return with corrected information and either refund additional amounts or issue a debt for underpaid tax. Interest charges may apply depending on timing and nature of the amendment.
We review and update our articles periodically. At the time of writing in February 2026, this information was assessed as current for the 2024-25 and subsequent income years based on legislated tax rates. Tax rates, thresholds, and HELP repayment amounts are subject to change through legislation. Individual tax circumstances vary significantly, and this guide provides general information only.
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