How Australia's Tax Rates Really Work

Have you ever wondered how Australia’s tax system works – or, if you have two jobs, why you still owe tax at the end of the financial year (EOFY), even though both your jobs have been withholding it all along?

Australia’s tax system can seem complicated, but at its core it follows a simple and fair principle: the more you earn, the higher the rate applied to the upper portion of your income.

Let’s break down how this works and what it means, especially if you have more than one job.

Australia’s Progressive Tax System: What it Actually Means

Australia uses a progressive tax system, which divides your income into portions called tax brackets. Each bracket is taxed at a different rate. As your income increases, only the portion that falls within a higher bracket is taxed at the higher rate – not your entire income.

2024-25 Tax Brackets:

Taxable Income	Tax Rate
$0 to $18,200	0% (tax free threshold)
$18,201 to $45,000	19% on each $1 over $18,200
$45,001 to $120,000	$5,092 + 32.5% on each $1 over $45,000
$120,001 to $180,000	$29,467 + 37% on each $1 over $120,000
$180,001 +	$51,667 + 45% on each $1 over $180,000

For example, if you earn $60,000, part of your income is taxed at 0%, part at 19%, and the rest at 32.5%. You don’t suddenly pay 32.5% on everything once you pass $45,000 – only the portion above that level.

The Tax-Free Threshold and Multiple Jobs

All Australian residents for tax purposes are entitled to the tax-free threshold of $18,200, meaning the first $18,200 you earn isn’t taxed.

When you start a job, you complete a TFN declaration and choose whether to claim the tax-free threshold from that employer. You should generally only claim it from your main job – the one where you earn the most.

Why This Matters if You Have Multiple Jobs

If you claim the tax-free threshold from more than one employer, each will treat the first $18,200 of income as tax-free. When you lodge your tax return, the Australian Taxation Office (ATO) combines all your income, applies the progressive tax rates, and calculates the total tax you owe.

If not enough tax was withheld during the year, as will be the case if you claim the tax-free threshold from multiple employers, you may receive a tax bill.

Even if you correctly claim the threshold from just one job, your combined income from multiple jobs may push you into a higher tax bracket. Since each employer withholds tax based only on what they pay you, there may still be a shortfall at tax time.

How Payroll Systems Calculate Tax

Employers use accounting software (such as Xero, MYOB and Quickbooks) to automatically calculate how much tax to withhold.

These systems use the ATO’s official tax rates, and consider:

• Whether you’ve claimed the tax-free threshold

• Your pay frequency

• Your gross (before tax) earnings

• Additional obligations (e.g. HECS/HELP repayments)

However, payroll software applies the appropriate tax rate as if your current job were your only source of income. That’s why, if you have a second job, it doesn’t “know” about your other income – and may not withhold enough tax to cover your total earnings across all jobs.

Examples

Here’s how this looks in practice with real numbers for different income levels.

Example A

Suppose you earn:

• $40,000 a year from Job A (you claim the tax-free threshold here), and

• $25,000 from Job B (you don’t claim the tax-free threshold here)

Here’s how each payroll system calculates tax:

Job A:

• First $18,200 🡢 0% 🡢 $0

• Remaining $21,800 ($40,000 – $18,200) 🡢 19% 🡢 $4,142 withheld

Job B:

• Entire $25,000 🡢 19% (since no threshold claimed) 🡢 $4,750 withheld

Total tax withheld across both jobs: $4,142 + $4,750 = $8,892

What the ATO actually calculates:

• Combined income: $65,000

• Tax calculation based on progressive brackets:

  • $0 – $18,200 🡢 0% 🡢 $0

  • $18,201 – $45,000 🡢 19% 🡢 $5,092

  • $45,001 – $65,000 🡢 32.5% 🡢 $6,500

• Total tax owed: $5,092 + $6,500 = $11,592

Result:

• Total tax withheld: $8,892

• Tax payable at EOFY: $11,592 – $8,892 = $2,700

Example B

Suppose you earn:

• $60,000 a year from Job A (you claim the tax-free threshold here), and

• $50,000 from Job B (you don’t claim the tax-free threshold here)

Here’s how each payroll system calculates tax:

Job A:

• First $18,200 🡢 0% 🡢 $0

• $18,201 – $45,000 🡢 19% 🡢 $5,092

• $45,001 – $60,000 🡢 32.5% 🡢 $4,875

Total withheld from Job A: $5,092 + $4,875 = $9,967

Job B:

• First $45,000 🡢 19% 🡢 $8,550

• $45,001 – $50,000 🡢 32.5% 🡢 $1,625

Total withheld from Job B: $8,550 + $1,625 = $10,175

Total tax withheld across both jobs: $9,967 + $10,175 = $20,142

What the ATO actually calculates:

• Combined income: $110,000

• Tax calculation based on progressive brackets:

  • $0 – $18,200 🡢 0% 🡢 $0

  • $18,201 – $45,000 🡢 19% 🡢 $5,092

  • $45,001 – $110,000 🡢 32.5% 🡢 $21,125

Total tax owed: $5,092 + $21,125 = $26,217

Result:

• Total tax withheld: $20,142

• Tax payable at EOFY: $26,217 – $20,142 = $6,075

So, even though each job withheld tax correctly for its own pay, the combined income pushes part of your earnings into a higher bracket, resulting in extra tax owed. When the tax withheld from each job doesn’t quite add up to what’s owed to the ATO, you’ll need to pay the difference.

Managing Your Tax Obligations

Here are some practical ways to avoid a surprise tax bill:

• Ask your second employer to withhold extra tax from each pay

• Not claim the tax-free threshold from any employer

• Use the ATO’s tax withholding calculator to estimate how much tax should be withheld from your combined income

• Review your income and tax withheld through myGov during the year

This ensures that by the EOFY, you’re closer to having the right amount of tax already paid.

In Summary

• Australia’s tax system is progressive, meaning tax rates increase as your income does

• The tax-free threshold should only be claimed once

• Multiple jobs can mean too little tax is withheld, because each job is taxed independently

• Payroll systems calculate tax correctly for individual jobs but don’t factor in income from other employers

• Adjusting your withholding or reviewing your income during the year can help prevent tax-time surprises

Got Questions?

Contact us – we’re happy to help and answer all your accounting questions!