The tax-free threshold is the first $18,200 you can earn in a financial year before you pay any income tax. If you are an Australian resident for tax purposes, this amount is tax-free. You claim it by ticking “yes” to the tax-free threshold question on the tax file number declaration you give your employer when you start a first job or a new job.

That is the short answer. The detail matters, though, because claiming it the wrong way, especially with a second job, is the single most common reason Australians get a surprise bill at tax time. This page walks through what the threshold is, how it works in your pay, how to claim it, and the traps to avoid.

General advice only. This article does not take your individual circumstances into account. Speak to a registered tax agent for tailored assistance and tax advice before acting.

What Is the Tax-Free Threshold and How Much Is It?

The tax-free threshold is the amount of income you can earn each financial year without paying income tax. For 2025-26 it sits at $18,200, the same figure as last year and every year since 2012-13.

Once your income goes above $18,200, you only pay tax on the amount over it, not on the whole lot. So earning $20,000 does not mean tax on $20,000. It means you pay tax on $1,800.

Here is how that first tax bracket works alongside the current income tax rates for 2025-26:

Taxable income	Tax on this income
$0 – $18,200	Nil (tax-free)
$18,201 – $45,000	16c for each $1 over $18,200
$45,001 – $135,000	$4,288 plus 30c for each $1 over $45,000
$135,001 – $190,000	$31,288 plus 37c for each $1 over $135,000
$190,001 and over	$51,638 plus 45c for each $1 over $190,000

The above rates do not include the 2% Medicare levy.

The first marginal rate above the threshold is 16%. So the very first dollar you earn over $18,200 is taxed at 16 cents. For a deeper breakdown of the marginal tax rates, see our guide to the personal income tax brackets.

How the Tax-Free Threshold Works in Your Pay

You do not get the $18,200 as a single lump at the start of the year. Your employer spreads it across your pay cycle, and the Australian Taxation Office (ATO) tax tables tell them the correct amount of tax withheld each payday:

• About $350 per week of your pay is tax-free
• About $700 per fortnight of your pay is tax-free
• About $1,517 per month of your pay is tax-free

When you claim it, your workplace uses the “tax-free threshold” column of the tax table to calculate how much tax comes out. Earn under those amounts and little to no tax is deducted. Earn above them and tax is deducted only on the portion over the tax-free slice.

This is why claiming it from the right payer matters so much, which we cover below.

How to Claim the Tax-Free Threshold

You claim the tax-free threshold when you start a new role, through the TFN declaration form (now usually completed digitally through your employer’s onboarding or through ATO online services via myGov).

On that form you will see the question:

“Do you want to claim the tax-free threshold from this payer?”

What “claim the tax-free threshold from this payer” actually means

The question is asking: do you want this particular employer to be the one that gives you your $18,200 tax-free amount?

Answer Yes if:

• You are an Australian resident for tax purposes, and
• You are not already claiming it from another payer, or your combined earnings from every income source will be under $18,200.

Answer No if:

• You already claim the tax-free threshold at another workplace, or
• You are a foreign resident (different rules apply to foreign residents, who cannot claim it).

A payer is not just an employer. Centrelink and other government providers count too. If you receive a taxable Centrelink payment as well as wages, only one of them should carry the threshold.

Second Job or Multiple Employers: The Most Common Trap

Here is the rule that catches thousands of people every year: only claim the tax-free threshold from one payer at a time.

If you work two roles, claim it from the one that pays you the most (your highest earner). For the other, answer No so that more tax is deducted at the higher “no tax-free threshold” rate.

Why? Because the $18,200 is a single, annual, whole-of-person allowance. Claim it twice and both employers apply a tax-free slice, so together they take out too little across the year.

The good news: nominating only your highest earner does not cost you anything. The threshold is applied properly across all your income when you lodge your tax return. You just avoid the shortfall building up in the first place.

The exception

If your combined income from every job will be under $18,200 for the year, you can claim the tax-free threshold from more than one payer, because you will not owe any tax anyway.

What Happens If You Don’t Claim the Tax-Free Threshold, or Claim It Twice

One thing the threshold does not change is how tax deductions reduce your taxable income. Deductions work the same either way; the threshold only decides how much of your income escapes tax at the bottom end.

If you don’t claim it at all (answer No everywhere), your employer deducts tax as if none of your income is tax-free. Too much is taken out during the year, and the excess comes back as a tax refund when you lodge your tax return. You do not lose the money, but you have effectively given the ATO an interest-free loan in the meantime.

If you claim it from two payers at once, the opposite happens. Not enough tax withheld across the year means an unexpected amount owing when you lodge: a tax bill instead of a refund. For someone with two solid part-time roles, the shortfall can run into the hundreds or thousands of dollars.

If you realise mid-year that you have it set up wrong, you do not have to wait. Complete a new withholding declaration form with your workplace to move the threshold to the correct payer or to lift the rate on the other role. Fixing it early softens any bill at tax time.

What About Business, Investment and Other Income?

The threshold is not just about wages. It applies to your taxable income from every source: business income if you run a small business or side hustle as a sole trader, investment income like interest and dividends, and any other income you earn in the year. If wages plus business profits plus investment returns together top $18,200, tax applies to the amount above the line, even if each source alone sits under it.

If you run a business as well, this sits alongside the main types of business taxes in Australia that may still apply regardless of your personal threshold. Good documentation helps here. Keep records of income from other sources so your tax return is right the first time and the ATO does not come asking questions later.

Starting or Stopping Work Part-Way Through the Year (Part-Year Threshold)

The full $18,200 assumes you are an Australian resident for tax purposes for the whole financial year. Become a resident part-way through (say, you move to Australia for your first job here) or stop being one, and you get a part-year tax-free threshold instead.

The part-year amount is made up of two parts:

• A flat $13,464 that everyone eligible receives, plus
• Up to $4,736 pro-rated on the number of months you were an Australian resident, including the month you arrived or left.

The formula is: $13,464 + (($4,736 / 12) × number of months you were a resident).

Note this is about your tax residency changing, not simply starting a new role or having a gap between jobs. If you were an Australian resident the whole year, you keep the full $18,200 even if you only worked for part of it, and everything squares up as intended when you lodge.

Frequently Asked Questions

Key Takeaways

• The tax-free threshold is the first $18,200 you earn tax-free each financial year, unchanged for 2025-26.
• It works out to roughly $350 a week or $700 a fortnight of tax-free pay.
• Claim it by answering Yes to the payer question on your tax file number declaration, and only from one payer at a time.
• With multiple jobs, claim it from your highest earner and answer No elsewhere to avoid a surprise at tax time.
• Don’t claim it and you overpay (refunded later); claim it twice and you underpay (a bill later).

Not sure yours is set up correctly, or juggling more than one income source? Contact the team at BOX Advisory Services. We can check your setup, make sure the right amount is coming out of each pay, and keep you clear of a tax-time surprise. Get in touch.