The quick answer
A tax bill at the end of the year usually isn’t one employer’s mistake. It generally comes from how tax is taken out when your income comes from more than one place.
The tax-free threshold is generally claimed from one payer only. Claim it from two at the same time and too little tax may be taken out during the year.
Side income often has no tax taken out at all. Money from freelance work, a platform or an ABN is added to your wages in your tax return.
The harder part: knowing how much is building up before the bill arrives, and what to change so it doesn’t happen again.
Each payer sees only their part
Your employer works out the tax on your pay from what you told them when you started. They generally don’t know what you earn anywhere else. Your tax return does: it adds every source of income together and works out the tax on the total.
That is why the ATO says:
“If you have more than one payer at the same time, generally, you only claim the tax-free threshold from one payer.”Australian Taxation Office, Multiple jobs or change of job
Even when the threshold is claimed from one payer only, the tax taken out during the year can still fall short.
The Medicare levy, a study or training loan and the tax rate that applies to your total income are all worked out on the combined figure, and not on each job separately.
Two people, same total income, different result at tax time
Two people earn the same amount across the year. One gets a refund. The other gets a bill.
The difference comes down to how many payers each one had, what each told those payers, whether part of the income had no tax taken out, and whether either of them has a study loan or private health cover.
Six questions that decide your result
QUESTION 1
Who did you claim the tax-free threshold from?
It is usually claimed from the payer who pays you the most. Claiming it from more than one payer at the same time is where many bills start.
QUESTION 2
Is the second income a job, or your own work?
Wages have tax taken out. Income from your own work generally doesn’t, and it may mean you are carrying on a business.
QUESTION 3
Do you have a study or training loan?
Compulsory repayments are worked out on your income for the whole year, and not on each job separately.
QUESTION 4
Does your total income change anything else?
The Medicare levy, the Medicare levy surcharge and some offsets depend on the combined figure.
QUESTION 5
What can you claim against the side income?
Expenses may be deductible where they relate to earning that income, and you need records to show it.
QUESTION 6
Will the ATO ask you to pay during the year?
Once side income appears in a tax return, the ATO may enter you into PAYG instalments.
There is no single answer to any of these. Each one depends on your own situation. Working them out is what we do every day.
What getting it wrong can cost
A tax bill you didn’t plan for, payable as a lump sum after the return is lodged.
The same bill again next year, because nothing was changed with your payers.
Side income left out of the return, when the ATO may already hold information about it from platforms, banks and other providers.
Deductions missed, because the expenses for the side income were never recorded.
Does this sound like you?
I started a second job this year.
I ticked the tax-free threshold box on both forms.
I drive, deliver or freelance on top of my wage.
I got a tax bill last year and don’t know why.
I have a study loan.
No tax comes out of my side income.
I’d rather have someone else work it out.
If even one of these is you, it’s worth a quick conversation. Sorting it out early is almost always easier than fixing it after the ATO gets in touch.
Common questions
I claimed the tax-free threshold from both jobs. What now?
It can generally be changed with your payer, so the right amount comes out from now on. What has already been under-withheld this year is worked out in your tax return. We tell you where you stand and what to change.
My side income is small. Do I still need to declare it?
Payments for work or services generally need to be reported, including small or one-off amounts. Some activities are a hobby and are treated differently, and that depends on the facts. Tell us what you do and we’ll tell you how it is treated.
Can I stop the bill from happening again?
In many cases, yes. There are ways to have more tax taken out during the year, or to pay towards it as you go. Which one suits you depends on where your income comes from. That is part of what we set up with you.
How much does it cost?
It depends on your situation, so we give you the fee before any work starts. Asking for a quote costs nothing.
