Congratulations! You've taken the leap and secured a second job, however you may be wondering how much you get taxed on a second job? Understanding how taxation works for your second job in Australia can empower you to optimise your earnings and confidently navigate your income tax withheld.
In this article, we'll explain the intricacies of tax on a second job in Australia, unraveling the common misconceptions and shedding light on the key principles that govern your tax payable.
This guide will equip you with the knowledge to make informed decisions and potentially maximise your income tax return.
We'll delve into essential topics such as the tax-free threshold, claiming deductions, differentiating between hobbies and businesses, and the progressive tax rates that apply to your additional earnings.
By the end of this article, you'll be armed with the tools to navigate your tax responsibilities with confidence and potentially unlock the full financial benefits of your second job.
Contrary to the common misconception, you don't actually get taxed more on a second job in Australia. The perception of paying higher taxes on a second job arises from the tax system in place. As your income increases from multiple jobs so does the amount of tax have to pay also rises, potentially pushing you into higher tax brackets.
The following tax brackets can help you understand your tax payable for the 2023/24 financial years:
$18,201 – $45,000 19c for each $1 over $18,200
$45,001 – $120,000 $5,092 plus 32.5c for each $1 over $45,000
$120,001 – $180,000 $29,467 plus 37c for each $1 over $120,000
$180,001 and over $51,667 plus 45c for each $1 over $180,000
We will apply this tax bracket in the following example:
Mark, a current student working in a bar as well as doing occasional courier food deliveries for some extra income.
Mark's casual job as a bartender pays him an annual salary of $20,000. This income falls within the $18,201 to $45,000 tax bracket, where the tax rate is 19% for every dollar over $18,201. So, for his primary job, Mark's tax liability amounts to $342.
Now, let's consider Mark's courier food service income. Throughout the year, his side gig brings in an additional $10,000. Adding this to his full-time job salary, Mark's total taxable income for the year becomes $30,000.
With all of his courier income falling within the previous tax income bracket the portion will be taxed at the rate of 19%. This means Mark's tax liability for his second job income amounts to $1,900, and his total income tax will be 1,900+342= $2,242.
Through this example, we can see that Mark's total tax liability is influenced by his combined income from both his incomes. It can make it easier to understand your tax withheld by combining both incomes. In Mark's position he would want to ensure he is claiming all necessary expenses such as self-education expenses.
Now that you know how much you should be taxed, how should you plan for this? The easiest and simplest way is to claim the tax-free threshold. It's advised that you should claim the tax-free threshold for your primary income, typically the job that pays you the highest salary or wage.
By doing so, you ensure that your employer correctly holds the tax withheld based on the tax-free threshold, this is to prevent you from getting taxed more than you need to be.
On the flip side, it's advisable not to claim the tax-free threshold for your secondary income. By allowing your secondary income to withhold tax from every dollar earned, you maintain a higher level of tax compliance and simplicity, which will prevent getting a large tax bill when lodging your tax return.
This approach not only helps to prevent unexpected tax debts but also streamlines the process, making your financial life smoother and more simple. So, be strategic, claim the tax-free threshold where it matters most, and embrace the simplicity and peace of mind that comes with smart tax planning.
It is important first to identify if you have a hobby or a business as the tax implications are very different.
If you have a hobby that doesn’t have the characteristics of a business and is a pastime or leisure activity conducted in your spare time for recreation or pleasure, then you don't need to worry about combining your total income as you don't need to declare your hobby income. However, keep in mind you can't deduct the expenses and losses from your hobby.
As offsets like the Low and Middle Income Tax Offset (LMITO) comes to an end, and individuals grapple with the ever-increasing cost of living, it becomes essential to prioritise accurate tax management, particularly when it comes to second job income.
With the expiration of LMITO, individuals relying on additional sources of income must navigate the tax landscape diligently. Getting taxed correctly is no longer just a matter of compliance; it directly impacts our financial well-being and ability to meet rising expenses.
By understanding the tax rules, seeking professional advice if needed, and ensuring proper tax planning, we can minimise tax liabilities, and effectively manage our finances. In an era where every dollar counts, it's more important than ever to get taxed correctly and proactively take control of our financial futures. Get in touch with one of our central coast accountants today!