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Tax free thresholds and changing jobs

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HN
Newbie

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Hello,

I was employed in a job for full time for 3 months, and claimed the tax free threshold. In that job I earnt above $20K. I have now changed jobs to another full time job and have not claimed the tax free threshold.  When I searched on here (and the ATO site) I can only find answers to the scenario where people have two jobs at the same time, not one after the after. I am now wondering if I did the correct thing. I know I will get any overpaid tax back, but I'd rather not have an over (or under!) payment at all!

With thanks

H

 

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Best answer

ATO Certified

Devotee

Replies 2

Hi @HN,

 

Welcome to the Community! It's a little tricky to answer your question - we don't know how much tax you've already had withheld or how much you'll tax you'll need to pay throughout the year.

 

You're right - sometimes the tax free threshold can lead to a tax bill when you change jobs. Your new employer doesn't know how much tax has already been withheld for you, so they can't make sure you won't get a bill - and in some cases, your old boss doesn't even have to tell us how much tax has been paid until the end of the financial year.

 

Let's use some simplified examples to show what can happen when you move from one job to another. In these examples, we'll assume you don't have any tax deductions so we can keep it simple. 

 

  • In scenario A, you switch from one job where you earn $56,316 a year to a new job where you earn $60,320. Your former employer withheld $422 a fortnight (based on $2166/fortnight) for 12 weeks; your new employer withholds $476 a fortnight (based on $2320/fortnight) for the rest of the year. When we calculate your tax, we’ll look at how much tax you should pay on your assessable income. Based on the individual income tax rates, we’ll work out your tax as follows:
    Assessable income - lower end of tax bracket x tax rate + base tax + Medicare levy = tax payable
            59396 -  37000 x 0.325 + 3572  + 1187.92 = 12038.62
    Your employers should have withheld the following:
    Tax withheld job 1 + tax withheld job 2 = total tax withheld     
           (422 x 6) + (476 x 20) =  2532+ 9520 = 12052
    Balancing accounts:
    Tax withheld – tax payable = Debit or Credit
           $12052.00 – $12038.62  = $13.38 CR (tax refund)

As you can see, there is only a slight refund available due to the difference in income. This refund can be larger or smaller depending on your income, and can be particularly important when you’re close to an income tax bracket.
Let’s change the situation a little and assume you have a higher education loan account (HECS or HELP) debt as well:

  • In scenario B, you switch from one job where you earn $56,316 a year to a new job where you earn $60,320. Your former employer withheld $466 a fortnight ($422 tax + $44 HELP repayments based on $2166/fortnight) for 12 weeks; your new employer withholds $568 a fortnight ($476 tax + $92 HELP repayments based on $2320/fortnight) for the rest of the year.
    Based on the individual income tax rates, we’ll work out your tax as follows:
    Assessable income - lower end of tax bracket  x  tax rate + base tax + Medicare levy + compulsory HELP repayment  rate = tax payable
            59396 - 37000 x 0.325 + 3572  + 1187.92 + (59396*0.04)  = 14414.43 
    Your employers should have withheld the following:
    Tax withheld job 1 + tax withheld job 2 = total tax withheld     
          (466 x 6) + (568 x 20) =  2796+ 11360 = 14156 withheld
    Balancing accounts:
    Tax withheld – tax payable = Debit or Credit
           $14156.00 – $14414.43  = $258.43 DR (tax bill)

If you want to, you can choose to claim the tax free threshold from your new employer. You'll need to give your employer or payroll a withholding declaration  to let them know to change how  much they withhold.

You can also choose to ask your employer to withhold a little extra from each pay to help reduce the likelihood of getting a bill. This is known as an upwards variation - and you only need to provide written advice explaining how much extra you'd like withheld per pay period (either in dollar amount or as a percentage).

Hope that helps!

3 REPLIES 3

Best answer

ATO Certified

Devotee

Replies 2

Hi @HN,

 

Welcome to the Community! It's a little tricky to answer your question - we don't know how much tax you've already had withheld or how much you'll tax you'll need to pay throughout the year.

 

You're right - sometimes the tax free threshold can lead to a tax bill when you change jobs. Your new employer doesn't know how much tax has already been withheld for you, so they can't make sure you won't get a bill - and in some cases, your old boss doesn't even have to tell us how much tax has been paid until the end of the financial year.

 

Let's use some simplified examples to show what can happen when you move from one job to another. In these examples, we'll assume you don't have any tax deductions so we can keep it simple. 

 

  • In scenario A, you switch from one job where you earn $56,316 a year to a new job where you earn $60,320. Your former employer withheld $422 a fortnight (based on $2166/fortnight) for 12 weeks; your new employer withholds $476 a fortnight (based on $2320/fortnight) for the rest of the year. When we calculate your tax, we’ll look at how much tax you should pay on your assessable income. Based on the individual income tax rates, we’ll work out your tax as follows:
    Assessable income - lower end of tax bracket x tax rate + base tax + Medicare levy = tax payable
            59396 -  37000 x 0.325 + 3572  + 1187.92 = 12038.62
    Your employers should have withheld the following:
    Tax withheld job 1 + tax withheld job 2 = total tax withheld     
           (422 x 6) + (476 x 20) =  2532+ 9520 = 12052
    Balancing accounts:
    Tax withheld – tax payable = Debit or Credit
           $12052.00 – $12038.62  = $13.38 CR (tax refund)

As you can see, there is only a slight refund available due to the difference in income. This refund can be larger or smaller depending on your income, and can be particularly important when you’re close to an income tax bracket.
Let’s change the situation a little and assume you have a higher education loan account (HECS or HELP) debt as well:

  • In scenario B, you switch from one job where you earn $56,316 a year to a new job where you earn $60,320. Your former employer withheld $466 a fortnight ($422 tax + $44 HELP repayments based on $2166/fortnight) for 12 weeks; your new employer withholds $568 a fortnight ($476 tax + $92 HELP repayments based on $2320/fortnight) for the rest of the year.
    Based on the individual income tax rates, we’ll work out your tax as follows:
    Assessable income - lower end of tax bracket  x  tax rate + base tax + Medicare levy + compulsory HELP repayment  rate = tax payable
            59396 - 37000 x 0.325 + 3572  + 1187.92 + (59396*0.04)  = 14414.43 
    Your employers should have withheld the following:
    Tax withheld job 1 + tax withheld job 2 = total tax withheld     
          (466 x 6) + (568 x 20) =  2796+ 11360 = 14156 withheld
    Balancing accounts:
    Tax withheld – tax payable = Debit or Credit
           $14156.00 – $14414.43  = $258.43 DR (tax bill)

If you want to, you can choose to claim the tax free threshold from your new employer. You'll need to give your employer or payroll a withholding declaration  to let them know to change how  much they withhold.

You can also choose to ask your employer to withhold a little extra from each pay to help reduce the likelihood of getting a bill. This is known as an upwards variation - and you only need to provide written advice explaining how much extra you'd like withheld per pay period (either in dollar amount or as a percentage).

Hope that helps!

HN
Newbie

Replies 1

Thankyou! That covered it well!

Devotee Registered Tax Practitioner

Replies 0

@HN @AmandaE

 

A new Employee in the first week of Employment should be given a Tax File Number Declaration by the Employer.

 

The answers given by the employee will determine the amount of tax deducted by the Employer eg Residency, Tax Free Threshold, HECS/Help etc.

 

I understand the information can be given via MyGov.

 

One of the questions on the TFN Declaration is whether the employee wishes to claim the tax free threshold from this employer.

The answer depends on the circumstances but if it is the main full time job, the answer is generally yes.

 

Duncan Smith

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