Starting a new job comes with a form that asks one question most people answer on instinct: do you want to claim the tax-free threshold from this payer? Get it right and your take-home pay is accurate all year. Get it wrong – usually by saying yes to two employers – and you meet the ATO’s most common cause of surprise tax bills.
This guide explains what the tax-free threshold is, who can claim it, how to claim or change it, what happens with two jobs, the part-year rule for new arrivals, and the separate rules for working holiday makers and foreign residents. Figures are for the 2025-26 return being lodged now and the 2026-27 year that started on 1 July 2026, checked against the ATO’s tax-free threshold pages and resident tax rates.
It is written for employees, people with a second job or side income, and newcomers to Australia. If you have already worked out that you claimed the threshold twice, our guide to how a second job is taxed explains how to fix the withholding.
Key takeaways
- The first $18,200 you earn in a year is tax-free if you are an Australian resident for tax purposes – the ATO equates it to $350 a week, $700 a fortnight or $1,517 a month.
- Claim it from one payer only, usually the one paying you the most. Tick Yes on that TFN declaration and No on every other.
- Two jobs, two Yes answers = a tax bill. Roughly 16% of $18,200 (about $2,900 in 2025-26) goes unwithheld, and it falls due when you lodge.
- Change it any time with a withholding declaration to your employer; you can also claim it from a new main employer even if you claimed it from the one you just left.
- Part-year residents get $13,464 plus a pro-rated share of $4,736; working holiday makers and foreign residents get no threshold.
- The threshold is applied at tax time regardless of what you ticked. The form only changes withholding, not the tax you ultimately owe.
Tax-free threshold at a glance
| Your situation | Threshold | Rate on income above it (2025-26) | Rate from 1 July 2026 |
|---|---|---|---|
| Australian resident, full year | $18,200 | 16% to $45,000, then 30% to $135,000 | 15% to $45,000, then 30% |
| Resident for part of the year | $13,464 + ($4,736 x months resident / 12) | Resident rates | Resident rates |
| Working holiday maker (417 / 462 visa) | None | 15% to $45,000, then 30% to $135,000 | ATO has not yet published a 2026-27 table |
| Foreign resident | None | 30% to $135,000, then 37% to $190,000; no Medicare levy | ATO has not yet published a 2026-27 table |
Source: ATO, How to claim the tax-free threshold; Tax rates – Australian residents; working holiday makers and foreign residents rates; tax-free threshold for newcomers. Checked 7 October 2026.
What does the tax-free threshold mean?
The ATO’s definition is simple: “The tax-free threshold is the amount of income you can earn before you pay tax. Most Australian residents can claim tax-free threshold on the first $18,200 of the income they earn in the income year.” Income above that is taxed at the progressive resident rates: for 2025-26, 16 cents in the dollar from $18,201 to $45,000, then $4,288 plus 30 cents to $135,000, $31,288 plus 37 cents to $190,000, and $51,638 plus 45 cents above that. From 1 July 2026 the first rate drops to 15 cents, so the 2026-27 figures are $4,020, $31,020 and $51,370. The Medicare levy of 2% is separate and has its own low-income thresholds.
Two things follow. First, the threshold is a feature of the annual tax calculation, not of your pay. Whatever you tick on a form, when you lodge your return the ATO applies the threshold once to your total income from all sources. Second, the form matters because it tells your employer which withholding schedule to use through the year. Claiming the threshold means your employer withholds nothing until your pay from them passes the threshold; not claiming it means they withhold from the first dollar at the “no tax-free threshold” rate. The ATO tax brackets guide has the full tables.
The LITO effect
The low income tax offset of up to $700 means a resident with no other offsets pays no income tax until taxable income reaches about $22,575 in 2025-26 ($18,200 plus $700 divided by 16%), or about $22,867 in 2026-27 at the 15% rate. That is our calculation from the ATO figures rather than an ATO threshold. See our LITO guide.
Who can claim the tax-free threshold?
Eligibility turns on residency for tax purposes, which is not the same as citizenship or visa status. The ATO uses the resides test and three statutory tests, explained on its tax residency page. Most people who live and work in Australia are residents. The ATO is clear about the rest: “If you’re a non-resident for the full income year, you can’t claim the tax-free threshold.”
- Australian residents for tax purposes – claim the full $18,200 (or the part-year amount if you became or ceased to be a resident during the year).
- Working holiday makers on 417 and 462 visas – the TFN declaration instructions say to answer No to the threshold question; income is taxed at the working holiday maker rates, 15% from the first dollar to $45,000 in 2025-26, unless you are a resident from a non-discriminatory article country (Chile, Finland, Germany, Israel, Japan, Norway, Turkey or the United Kingdom), in which case you are taxed as a resident if that produces less tax.
- Foreign residents – no threshold; foreign resident rates apply from the first dollar (30% to $135,000 in 2025-26) and no Medicare levy is payable.
Part-year residents
If you arrive in or leave Australia during the year, the threshold is apportioned. The ATO’s formula on its newcomers page is a flat amount of $13,464 plus “an additional $4,736 – apportioned for the number of months you were in Australia during the income year, including the month you arrived.” The ATO’s example: John becomes a resident on 17 April, so his threshold is $13,464 + ($4,736 x 3 / 12) = $14,648. In myTax 2026 you enter the dates in the Part-year tax-free threshold section and the system does the arithmetic.
How to claim the tax-free threshold
You claim it on the tax file number declaration you give each payer, including Centrelink. There are three ways to complete it: online through myGov (sign in, select the ATO, then Employment and New employment), through your employer’s own onboarding system, or on the paper form (NAT 3092). The threshold question reads “Do you want to claim the tax-free threshold from this payer?” The ATO’s instructions say to answer Yes if you are an Australian resident and either are not claiming the threshold from another payer, or are claiming it elsewhere but your total income from all sources will be under $18,200. Answer No in every other case, and always if you are a working holiday maker or a foreign resident (unless you receive an Australian Government pension or allowance).
- Give your TFN, name, address and date of birth, and check the TFN carefully – a wrong TFN means top-rate withholding.
- Answer Yes to the threshold question for your main job only.
- Answer the HELP, VSL and other study loan question honestly so the right extra withholding is applied.
- Sign and return it within 28 days of starting; your employer lodges it with the ATO.
- If anything changes later, give the employer a withholding declaration (NAT 3093) rather than a new TFN declaration.
For a step-by-step walkthrough of the form itself, see our guide to how to claim the tax-free threshold.
Two jobs: claim it once, from the highest payer
The ATO’s rule on its multiple jobs page: “If you have more than one payer at the same time, generally, you only claim the tax-free threshold from one payer. Usually, you claim the tax-free threshold from the payer who pays you the highest salary or wage.” Your other payers should withhold at the no-threshold rate. The one exception is where you are certain your total income from all payers will stay at or below $18,200 – then you can claim it from each, but if your income later rises you must give one employer a withholding declaration.
What goes wrong is described on the ATO’s multiple sources of income page: “You may not have had enough tax withheld throughout the year if your total income is above $18,200 from all employers, and you have claimed the tax-free threshold from more than one employer. This means you may receive a tax bill to pay the difference.” The ATO also notes that income earned under an ABN counts towards your threshold, so a sole trader with a part-time job should claim the threshold through the employer, where withholding happens, and settle the business income through the return.
Example: Alex, two jobs
Alex earns $60,000 at a main job and $20,000 at a weekend job in 2025-26. Total tax on $80,000 is $4,288 + 30% x $35,000 = $14,788 (plus $1,600 Medicare levy). If Alex claims the threshold at the main job only, the weekend employer withholds from the first dollar and the total withheld lands close to $14,788. If Alex ticks Yes at both, the weekend employer treats the first $18,200 of that $20,000 as tax-free and withholds only on about $1,800 – roughly $2,900 less than it should. Nothing changes in the tax Alex owes; the shortfall simply arrives as a bill after lodgment.
Example: Hamid changes jobs. Hamid leaves a café job in February and starts a graduate role. The ATO confirms he can claim the threshold from the new employer even though he claimed it from the café – the jobs were not at the same time.
Changing your choice during the year
If you take on a second job, give the new employer a TFN declaration answering No. If your main job ends and the second job becomes your only income, give that employer a withholding declaration answering Yes. The ATO notes you can also ask a payer to withhold extra, which is a simple way to cover a side income or a HELP debt, and if too much is being withheld you can apply for a PAYG withholding variation.
Rule of thumb
One Yes, from the job that pays you most. Every other payer gets a No. If you are not sure your total will stay under $18,200, treat it as if it will not.
Why the form only changes your withholding, not your tax
Employers withhold tax under Pay As You Go withholding using ATO schedules. Claiming the threshold selects the “with tax-free threshold” schedule; not claiming it selects the “no tax-free threshold” schedule, which withholds from the first dollar. Single Touch Payroll reports each pay to the ATO as it happens, so by the time you lodge, the ATO already knows how much was withheld by every employer. At assessment it calculates your actual tax on total income – applying the $18,200 threshold exactly once – and compares it with what was withheld. The difference is your refund or your bill. That is why not claiming the threshold at your only job does not cost you anything in the end: you simply over-withhold and get it back as a larger refund.
Common mistakes
- Claiming the threshold from two employers at once. The number one cause of unexpected tax bills for people with a second job.
- Forgetting to claim it at your only job. Not costly, but it means smaller pay packets and a bigger refund than necessary.
- Not updating when your main job changes. Give the new main employer a declaration with Yes.
- Working holiday makers answering Yes. The ATO says No; the 15% rate applies from the first dollar.
- Assuming a visa decides residency. Tax residency is a separate test; many temporary visa holders are residents for tax purposes and do get the threshold.
- Ignoring ABN or Centrelink income. All of it counts towards the one threshold.
- Expecting the threshold to cover the Medicare levy or HELP repayments. Both are calculated separately.
FAQ about the tax-free threshold
What is the tax-free threshold in Australia?
It is the first $18,200 of income an Australian resident for tax purposes can earn in an income year without paying income tax. The ATO says it is equivalent to earning $350 a week, $700 a fortnight or $1,517 a month. Above $18,200 you pay tax at the resident rates – 16% on income to $45,000 in 2025-26, falling to 15% from 1 July 2026.
Should I claim the tax-free threshold?
Yes, from one payer, if you are an Australian resident for tax purposes. The ATO says you usually claim it from the payer who pays you the highest salary or wage. Claiming it means that payer withholds no tax until your earnings from them pass $18,200, so your take-home pay is higher through the year.
What happens if I claim the tax-free threshold from two jobs?
Both employers withhold as though the first $18,200 they each pay you is tax-free, so too little tax is withheld overall. The ATO says you “may receive a tax bill to pay the difference”, due as a lump sum after you lodge. The fix is to give your second employer a withholding declaration answering No to the threshold question.
Do working holiday makers and foreign residents get the tax-free threshold?
No. The ATO’s TFN declaration instructions tell working holiday makers to answer No to the threshold question; they are taxed at 15% from the first dollar up to $45,000 (2025-26 rates), unless they are residents from a non-discriminatory article country. Foreign residents cannot claim the threshold and pay 30% from the first dollar (to $135,000 in 2025-26), with no Medicare levy.
I became a resident part-way through the year – do I get the full $18,200?
No, you get a part-year threshold. The ATO formula is a flat $13,464 plus $4,736 apportioned for the number of months you were a resident, including the month you arrived. Someone who became a resident on 17 April gets $13,464 + ($4,736 x 3/12) = $14,648. myTax has a Part-year tax-free threshold section for this.
Talk to specialist before it costs you
15-minute discovery call. No obligation, no jargon.
Talk to a registered tax agent
If you have two jobs, a side business, a partner on a visa or a move into or out of Australia this year, the withholding settings on a one-page form decide whether July brings a refund or a bill. Nanak Accountants prepares individual returns for clients across Australia and can set your withholding up properly from the first pay. Call 1300 626 258 or book a free 15-minute consultation.
This article is general information only and is not personal tax advice. Threshold amounts, resident, working holiday maker and foreign resident rates, the part-year formula and the multiple-payer rules were checked against ATO pages on 7 October 2026. The ATO had not published 2026-27 rate tables for working holiday makers or foreign residents at that date.
