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INTRODUCTION
Does working a second or third job mean they get taxed more than your first?
Our topic this week focuses on unravelling what actually happens when you work additional jobs and how you can prepare your taxes more efficiently during the year to avoid a end of year tax bill.
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WHY THE TAX BILL
Plenty of clients have come through with second even third or more jobs and getting hit with a big tax bill at the end of the financial year. It almost seems not worth the time spent during year working so many jobs only to realise at the end that you owe a large chunk of that income back to the ATO. Let’s break things down and explain why this is happening…
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- The most common thing to do when completing your Tax Declaration Form is ticking the box to claim the Tax-Free Threshold for your first job. All Australian residents are entitled to earn up to $18,200 tax-free before they need to start paying tax to the ATO, that’s what claiming this box does – you get paid up to $18,200 and your employee takes no tax from you.
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When working at your second or third job, it’s then very important NOT to claim this tax-free threshold again as the additional sources of income will add onto what you’re already earning. This means that you’re already well and truly past that tax-free threshold.
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Claiming this again will result in ANOTHER $18,200 worth of income not taxed. By doing this, you’re setting yourself up for a big tax bill at tax time!
[spacer height=”30px”] - For those that are not claiming the tax-free threshold on their additional jobs, another problem may occur…Lets say for example you’ve earned $50,000 from your first job.
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- the first $18,200 is tax-free
- the next $18,800 is taxed at 19%
- And the last $13,000 is taxed at 32.5%
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- The most common thing to do when completing your Tax Declaration Form is ticking the box to claim the Tax-Free Threshold for your first job. All Australian residents are entitled to earn up to $18,200 tax-free before they need to start paying tax to the ATO, that’s what claiming this box does – you get paid up to $18,200 and your employee takes no tax from you.
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With additional jobs, it makes sense that your employer should be taxing you at 32.5% or higher however due to the increased earnings you’re receiving when we pool all jobs together. However, in most cases they don’t realise how many other jobs you’re working and assume that where you work now is the only income you have. This means that they could be taxing you at lower rates resulting that big tax bill you’re dreading at tax time.
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SOLUTION
It’s important to speak to your trusted accountant when you have an additional source of income. Sitting down with them and understanding what your overall income may look like for the full financial year can give your accountant an idea of what kind of tax rates you should be getting taxed at for any additional sources of income. This will help you avoid paying such large sums at the end of the year and helps to better plan your finances.
Again, planning and organising is key. You may not worry about this at all and just pay the lump sum at the end however, for many it’s a big hit that can cause a lot of financial hardship. Understanding how to overcome these types of obstacles and staying ahead of your finances is one extra step towards a successful future.
You can contact Steven Wong Accountants with our information provided below for any help or services in relation to accounting and taxation needs.
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Steven Wong Accountants
Accounting for Growth
0401150894
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