Second-Job Tax: Withholding vs Your Final Bill

There is no second-job tax rate

A second job has no separate tax rate. Your pay from every job is added together and assessed once, at the ordinary resident rates, when you lodge. But each payer withholds tax from its own pay only, so even correct declarations on a $91,000 income from two jobs can leave about $3,252 to pay.

The first $18,200 is tax-free, and the top rate of 45% applies only to taxable income above $190,000, plus the 2% Medicare levy.

What does change is withholding: the tax each payer takes out of each pay. Each payer only sees its own payslip, so the second job is usually withheld at the “no tax-free threshold” rate from the first dollar. That can make the second payslip look heavily taxed, but it is a prepayment towards one annual bill, not a separate tax, and depending on your total income it can turn out too high or too low. The income tax guide explains the brackets.

Should you claim the tax-free threshold on a second job?

You answer the tax-free threshold question on the TFN declaration you give each payer. If your total income from all payers will be above $18,200, claim it from one payer only, usually the one that pays you the most, and answer “no” for every other job. That second payer then withholds at the higher no-threshold rate.

If you are a resident for the full year and sure your combined income will stay at or below $18,200, the ATO lets you claim the threshold from each payer, so little or no tax is withheld. Non-residents for the whole year cannot claim it, and part-year residents get a reduced threshold. If your income later rises, give one payer a withholding declaration to stop claiming it there. The same form can move the claim to a different payer, for example when your main job changes.

Source: ATO — Multiple jobs or change of job.

Withholding versus your final bill

The no-threshold rate is calculated from the second job's pay alone. It cannot see that your main job has already used the tax-free threshold and lower brackets, so it can withhold less than the extra tax that pay really adds. At lodgment the ATO adds up all your income and all the tax withheld: too much withheld becomes a refund, too little becomes a bill. The ATO's own multiple-jobs page includes a correctly declared taxpayer, with a pension and a part-time job, who ends the year owing tax.

Source: ATO — Schedule 1 statement of formulas and ATO — Multiple jobs: tax withheld from all income sources.

Worked example: one job versus two

One person earns $91,000 a year: Job 1 pays $2,500 a fortnight and Job 2 pays $1,000. The assessed tax is the same in the first three rows, because the income is the same. Only the withholding changes: one job ends with $388 refund, two correctly declared jobs with $3,252 to pay, the threshold claimed on both with $6,840 to pay, and a HELP debt on top with $6,323 to pay. To run your own two jobs through the same steps, use the second job tax calculator.

The standard deduction guide explains the deduction used in the assessed figures.

HELP and other income-tested amounts

Anything worked out on your income for the year uses the combined figure. Your compulsory HELP repayment is based on total repayment income, but each payer adds a study-loan amount only from its own pay. In the example, neither payslip carries any study-loan amount at these pay levels, yet the assessment adds about $3,071 in HELP repayment, leaving $6,323 to pay in all. That assumes your loan balance is at least that large; the repayment never exceeds what you still owe. Tell every payer about the loan on its TFN declaration, and expect a gap anyway.

The same applies to the Medicare levy surcharge and the low income tax offset: both use your income for the whole year, so a second job counts towards each one even though no single payslip reflects it. The Medicare levy surcharge guide covers the cover test.

Source: ATO — Why you may receive a tax bill and ATO — Study and training loan thresholds and rates; the per-payer study-loan amount follows ATO Schedule 8.

How to avoid a bill from two jobs

• Claim the threshold once. If you ticked “yes” at both jobs, give the lower-paying one a withholding declaration. It stops the shortfall growing; it does not refund what was already under-withheld.
• Ask for more to be withheld. An upward variation needs only a written request to your payer, or a withholding declaration through ATO online services. Unlike a downward variation, it does not need ATO approval. In the example, about $126 extra a fortnight would have covered the gap.
• Or set money aside. Estimate the year with the tax return calculator and save the gap, or make voluntary tax prepayments.
• Too much withheld? A downward variation needs an ATO application, and the ATO says to apply only when you are certain of your income.

Source: ATO — Varying your PAYG withholding and ATO — How to prevent a tax bill.

What to read off each payslip

To check where you stand mid-year, take these from the latest payslip for each job:

• Gross pay and tax withheld year to date, plus the pay cycle.
• Whether the tax looks like the threshold rate or the no-threshold rate — the tax withheld calculator shows both for any pay.
• Any separate study-loan amount, and salary sacrifice or allowances.

To plan ahead, the second job tax calculator shows what each payer should withhold and whether both jobs together point to a refund or a bill. To check the year so far, add both jobs' year-to-date income and tax withheld, project them to 30 June, and enter the totals in the tax return calculator. The tax refund guide explains the other reasons a refund or bill can differ.