Tax-free threshold
The first $18,200 of income you can earn tax-free.
The tax-free threshold is the amount you can earn each year before any income tax applies — $18,200 in Australia. You claim it from one employer so that first slice of income isn’t taxed. Earn under the threshold overall and you generally pay no income tax.
You claim it from one employer at a time — normally whichever pays you most — because the threshold is a yearly allowance, not one per job. A second job withholds without it, which looks like a harsher rate on that payslip but is simply the same allowance not being counted twice.
Worked example
Earn $25,000 for the year and the first $18,200 is untaxed, leaving $6,800 to be taxed at the lowest band. Claim the threshold at two jobs paying $15,000 each and both treat your first $18,200 as free — between them they under-withhold, and the shortfall arrives as a bill at tax time.
Common mistake
Claiming it at a second job to take home more each week. Nothing is saved, only deferred: the same income tax is owed either way, and it turns a neutral payslip into an unexpected debt on your assessment.
Grounded in ATO guidance. Figures last checked . General information, not tax advice.
Related terms
Marginal tax rate
The tax rate on your next dollar of income.
Medicare levy
A 2% levy on most taxable income that funds public health.
CGT discount (50%)
Hold an asset over 12 months and only half the gain is taxed.
Franking credits
A credit for company tax already paid on your dividends.
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Questions about this term
Tax-free threshold: common questions
- Should I claim the tax-free threshold at both of my jobs?
- No — claim it from one employer only, normally whichever pays you most. The threshold is a yearly allowance, not one per job. Claim it at two jobs paying $15,000 each and both treat your first $18,200 as tax-free; between them they under-withhold, and the shortfall arrives as a bill on your assessment.
- Why does my second job seem to be taxed at a harsher rate?
- Because that employer withholds without the threshold. The second payslip looks harsher, but it is simply the same yearly allowance not being counted twice. Nothing extra is owed overall — the tax on your combined income is the same either way — and claiming the threshold at one job keeps your withholding close to the final figure.
- How much of a $25,000 income is actually taxed?
- Only the slice above the threshold. Earn $25,000 for the year and the first $18,200 is untaxed, leaving $6,800 to be taxed at the lowest band. Earn under the threshold overall and you generally pay no income tax at all. The income tax calculator on this site works the exact figure for your own income.
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