“Do I select Yes or No for the tax free threshold?”
This is the most common question asked by friends and family when they are starting a new job.
The Australian Tax System is made up of tiered tax rates, with the first $18,200p.a earned by individuals, not taxed, this is known as the tax free threshold.
Generally the question, found on your Tax File Number Declaration Form, is asking if you want the first $18,200p.a. paid by this employer in the form of your salary and wages to be tax free.
Why would you select ‘No’ and be taxed on every dollar?
Forced Savings – if you are not disciplined with saving money but have goals of a large purchase, down payment on a mortgage or wanting to go on a gap year holiday, this may be an option. Any tax withheld above the determined amount of tax payable when you complete your tax return, will be refunded to you.
Second Job – We highly recommend selecting ‘No’ if you have wages and/or salary from more than one source. As ALL income is included in your tax return, only the first $18,200 makes up the tax free threshold, not the first from each source. If you are claiming the tax free threshold from more than one employer, you will very likely receive a tax bill when your tax return is processed.
In a nutshell …
If you have more than one job, we recommend claiming the tax free threshold from the employer that pays you the highest regular amount. Remember, only the first $18,200 each year from ALL employers is tax free. If in doubt, have a chat with Rob or Karen at Wall Business Services to be sure your own situation is considered.