Are you paying too much PAYG withholding tax?

Some of us find ourselves, at various stages in our life where we contemplate getting a second job.  So the question often is how much PAYG withholding tax do you have to pay and is it worth it?


First, let me explain how the 'tax-free threshold' works.  In the first job (your main job) you can claim the tax-free threshold (i.e. the first $18,200 is not taxed) if you are an Australian resident for tax purposes.  So a portion of your income is not taxed.  If you get a second job, you are already claiming the tax-free threshold so you cannot claim it again, this means you get taxed on every dollar you earn.  Note that this is not a higher tax than your main job, it's just taxing all of your pay.  If you were to work an extra 10 hours on your first job it would be the same result.  It is important to get this right as if you tick the wrong checkbox on the tax file declaration form that the payroll department uses to set up your payroll, you will not be paying enough tax and may end up owing tax instead of getting a refund.


So how do we fix this if we made an error and claimed the tax-free threshold on both jobs?  You fill out a Withholding Declaration Form and hand this to your employer (or payroll department).  This is the official form to use to advise your employer of a change of information previously provided in your tax file number declaration form.

So how can we avoid paying too much tax?  Firstly, ensure you have correctly filled out your tax file number declaration and claimed the tax free threshold if you are an Australian resident for tax purposes.  For your second job make sure that at question 8 'Do you want to claim the tax‑free threshold from this payer?' select no.


You can use the ATO withheld calculator on the ATO website that tells you how much you will take home for any given level of income.  Tax withheld for individuals calculator   You can compare your current income with your income if you took an additional job to see the total take-home pay.  You will need to do two calculations as you have to select the correct tax-free threshold option.  Some people voluntarily pay extra tax as a forced savings out of their pay-cheques, it's entirely up to you as to what works best.  I personally prefer to either pay down debt or put away money into an online savers account that pays slightly higher interest.  But this is a whole other blog that I will do in the near future.  If you do want to withhold extra tax each pay cheque then you fill out the withholding declaration form and pass it onto the appropriate person for payroll purposes.


Below I have included some handy links to obtain the necessary forms and a bit of reading.  

Tax withheld for individuals calculator

Withholding Declaration Form 

Tax File Number Declaration Form

What is the tax free threshold?

If you feel you need some advice with your payroll matters (if you are an employer) and help in establishing or fine tuning your accounting software please get in touch.

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Disclaimer: This is not specific tax advise and you should always seek advice from your tax agent or accountant for your own specific circumstances.  This blog article is intended for education purposes only.